Killed by AI: What's happening with Chegg

With every new technology, there's a Kodak.. or Nokia.. For AI, that company is Chegg - a publicly traded, once highflying edtech company.

We break down the story of Chegg, and distill four learnings for GTM leaders.

• (00:00) - Introduction
• (02:02) - The Role of AI in Our Show
• (05:34) - The Rise and Fall of Chegg
• (07:59) - Chegg's Business Model and COVID-19 Impact
• (13:44) - The ChatGPT Disruption
• (16:39) - The Resilient Business: Surviving Disruption
• (17:03) - AI's Impact on Incumbents
• (18:33) - The Innovator's Dilemma
• (20:29) - Opportunities for Change
• (21:38) - AI Disruption in Various Industries
• (24:05) - Strategies for Business Resilience
• (26:15) - The Importance of Diversification
• (27:50) - Facing the Reality of Disruption

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Creators and Guests

Host

Mikkel Plaehn

Marketing leader & b2b saas nerd

Host

Toni Hohlbein

2x exited CRO | 1x Founder | Podcast Host

What is The Revenue Formula?

This podcast is about scaling tech startups.

Hosted by Toni Hohlbein & Raul Porojan, together they look at the full funnel.

With a combined 20 years of experience in B2B SaaS and 3 exits, they discuss growing pains, challenges and opportunities they’ve faced. Whether you're working in RevOps, sales, operations, finance or marketing - if you care about revenue, you'll care about this podcast.

If there’s one thing they hate, it’s talk. We know, it’s a bit of an oxymoron. But execution and focus is the key - that’s why each episode is designed to give 1-2 very concrete takeaways.

[00:00:00] Toni: Hey everyone. This is Toni Hohlbein.
[00:00:01] You are listening to the revenue formula with Mikkel and Toni. In today's episode, we are talking about check a company whose stock price has tumbled 99 percent since the introduction of chat GPT. We run through what went wrong with that company and also what you can learn from it.
[00:00:21] Today's episode is brought to you by ever stage, the top writer platform to automate sales commissions. You can create a single hub for your reps to track all their deals, earnings, and performance history thanks to EverStage's seamless integration with Salesforce, Microsoft Dynamics, Slack, and MS Teams.
[00:00:39] Reps can also know exactly how much they could earn with Crystal, EverStage's one of a kind commission forecasting module. Visit everstage. com to learn more and help your sales teams ace 2025.
[00:00:52] Mikkel: So last night I basically woke up with like a jolt of lightning going through my body. Because the fire alarm went off in the hallway. And I run out there and obviously nothing's gone.
[00:01:05] No fire, battery
[00:01:07] Toni: But that's fucking scary.
[00:01:08] Mikkel: But it's like, Oh, I was like, my heart was racing. I stand there and I can just hear like everybody's snoring. No one registered anything. And I asked them this morning. They were like, did none of you hear like the fire alarm last night? I was like, no, no, none of them heard.
[00:01:26] So probably, yeah, we need something more like.
[00:01:29] Toni: Sounds a little bit like the story of revenue operations, you
[00:01:31] Mikkel: No, exactly.
[00:01:33] Toni: Like a lot of blaring,
[00:01:35] things going sideways. And then you know, they're like, Hey, but did, did you see? I just, it was like, no, I didn't see
[00:01:42] anything. Sorry. I'm not sure what you're talking about.
[00:01:45] Mikkel: No, exactly. That was good fun. That was good
[00:01:50] Toni: So, but you do know that I think a battery powered fire alarm systems. I think they're not legal anymore. Just
[00:01:59] so you know.
[00:02:00] Mikkel: Okay. Wow. It's going to be so awesome.
[00:02:02] Like when I use AI to create like the different chapters, this one is going to be labeled battery powered smoke detectors. And just because I said it like this now, that's going to be the chapter. That's going to be it. Pretty amazing. Like we were talking about, we've been
[00:02:15] using AI
[00:02:15] Toni: It would be so funny if it labeled it terrible. Intro
[00:02:19] Mikkel: idiotic
[00:02:20] Toni: Yeah. Jump over. Jump over to the
[00:02:22] Mikkel: boring conversation. No, you and I, we literally just talking about, we've been using AI more and more and more obviously it's a thing we care deeply about. One of the things we're going to talk about today is obviously the Kodak of AI check, right?
[00:02:33] We're going to talk a bit about that today. We've been using. Deep research, not conducting it. We've been using it to help create this show. We've been using chat, GBT to do specific analysis of investor calls of videos on YouTube, et cetera. I think for us, for you and I as hosts is fundamentally even change.
[00:02:54] Some of the things we could and would talk about and some of the informations that we have which is just to say It's definitely gonna change a lot of things for a lot of folks us
[00:03:03] included.
[00:03:03] Toni: as an example, right. So kind of to drive this point a little bit for the home, because like almost, you know, I don't want to say we're journalists or anything like we're not, we're just, you know, we're, we're hobbyists, you
[00:03:14] know, We're hobbyists. Yeah
[00:03:16] No, but I listen a lot to the New York times opinion podcast from Ezra Klein. Fantastic show. I mean, you need to be interested in US politics to kind of care, but kind of, he had a segment on, on AI, which obviously, you know, I listened to. And you know, he's not one of those AI acolytes that maybe you think we are.
[00:03:36] Mikkel: Fair which
[00:03:37] is fair
[00:03:37] Toni: think he's a little bit more level headed about this.
[00:03:40] But you know, he's working at the New York times kind of, he's a professional and he does these things for a living. He's like, goes really deep with that stuff
[00:03:48] and he used deep research. To ask them like you know, really complicated question in preparation for a show that he wants to do.
[00:03:54] and and he has a staff of a couple of researchers, like, you know, Harvard, Princeton, what have you, people that actually made it into New York times to
[00:04:02] get paid shitty salaries, but do this like all day long.
[00:04:05] And he was like, well, you know, I put this into, into deep research. And the results I get out, you know, there were an average result that I would expect from one of my analysts. to produce after two weeks work.
[00:04:21] Mikkel: yeah
[00:04:23] Toni: That's what he said. He didn't
[00:04:24] say this is the top of the crop. I've never seen any of my analysts do anything better than this.
[00:04:30] He said it's the average expectation of what these guys would be doing. But like obviously after two weeks time and you know, two weeks time if you're in New York times and, and you know, you probably live in New York city or something like this. I mean, that's still, I think 5, 000.
[00:04:44] You know, if not if not, if not 10, 000, basically two weeks time.
[00:04:47] Right. And so just kind of keep this in mind. Right. So kind of the, some of these things are starting to come and come and come and going to be, you know, more surrounding us with better examples by the way, in the future, but today we have kind of a, what kind of an example do we have for you guys today?
[00:05:03] Mikkel: No, I was just going to say like, before we get there, like, so what you're really saying is either you and I improve the quality of the show or we get replaced by AI, that's what, that's what you're saying
[00:05:14] basically.
[00:05:15] Toni: Oh Yeah. I think all of, no,
[00:05:16] I think, I think what people would still be missing is like a shitty introduction.
[00:05:21] It's like
[00:05:22] Mikkel: it's like hearing our stories about children and fire smoke detectors and whatnot. No, I agree. That's like, that's what sells this show. That's what makes it unique. You know, it's like Conan, why would you watch Conan if not for him? Do you know what I mean?
[00:05:34] Anyway, we're going to talk a bit about the Kodak of AI, which is currently check currently that is check.
[00:05:40] It is a company which stock price has. Not soared pretty much the opposite. It's dropped 99 percent In the last couple of years. Yeah, that's like it feels like they would File for chapter 11 anytime soon when you hear that story. It's not the case kind of In a, you know, really hilarious twist of events, they are profitable.
[00:06:05] They are profitable. They're making money so we can laugh all we want, but they are making money. Right. The thing is they've seen interest on Google search drop also from an index of a hundred about four years ago to 25 today, 25 index. So it is a company that is. Doing the opposite of growing their latest earnings call revenue was down 25 percent year over year.
[00:06:26] They basically lost 21 percent of their subscribers. And this is from already having lost subscribers
[00:06:33] in
[00:06:34] Toni: this is, this is from like this quarter to the quarter last year,
[00:06:39] but from the quarter last year to the quarter, like the year before
[00:06:43] they lost over 70 percent of
[00:06:45] the revenues,
[00:06:46] right?
[00:06:46] Mikkel: So it's going,
[00:06:47] Toni: It's, it's actually insane.
[00:06:50] Mikkel: Yeah. And so Dave, obviously also like some other companies I think you've seen, maybe you've seen a LinkedIn, the graph of HubSpot's traffic. That's just cratering post a chat GPT, right? Obviously as a company, they also were depending on Google search. And what do you do when you really suffer as a business and you have some money to spare while you start suing?
[00:07:10] Apparently. So they are suing Google for their I think AI search experience, which is apparently taking away from their share there, basically their acquisition is is running behind. Right. So. Let's just put it like this. It's a company in distress or duress. Which one is it is who knows? They're in trouble.
[00:07:28] They're
[00:07:28] in trouble. They have, yeah, they're F and for, and maybe for all senses of purposes, before we take it further, before we take this story further, because obviously AI is to blame, right? AI is to blame some idiotic AI agent should be fired for this. But before
[00:07:42] Toni: Heads need to roll, you
[00:07:44] Mikkel: no, exactly, exactly.
[00:07:45] And, you and I just talked about it, Europeans we have quite a few in our audience, given the location we're recording from, which is Europe. Some would call it the heart of Europe because it's Denmark.
[00:07:55] Toni: Of you? Really?
[00:07:57] Whoever
[00:07:57] Mikkel: I don't know. I don't know. Yeah. Who said that?
[00:07:59] What is Czech? What is, what, what, what are they doing?
[00:08:02] What is this company? Let's, let's, let's just paint that picture before we get into what the heck went
[00:08:06] down
[00:08:06] Toni: So let me, let me maybe tell the story. And, and first of all, everyone's hearing Czech. Ah, okay. C H E C K.
[00:08:13] No.
[00:08:14] No. That's not how you spell them. It's C H E G G.
[00:08:18] Mikkel: Yeah.
[00:08:19] Toni: So check basically.
[00:08:21] Mikkel: this out. No.
[00:08:22] Toni: Yeah. Yeah. You know, I think you totally got it. And everyone knows now where this show is being recorded from
[00:08:29] because, you know, English is our second language,
[00:08:31] but any who so this is actually kind of, I think it was three guys out of their dorm room started to realize, oh, wow, we kind of need to buy those expensive textbooks.
[00:08:40] And we barely touched them.
[00:08:42] Because, I mean, let's be honest. And and then we kind of, you know, throw them away or kind of resell them. So what if we could change that dynamic a little bit? So what they did is they started to just, you know, buy those books and rent them out which is totally, totally smart.
[00:08:58] And obviously that, you know, messed with the business model that all those publisher houses
[00:09:02] had, right. Because that's the idea. So, what they then did is they. In a very logistically heavy exercise. And I think this was in 2010 or something like this when they started, right? They're not super old, but
[00:09:14] they're also
[00:09:14] not, yeah. They, they basically kind of got this up to like roughly 10 million euros in AR
[00:09:19] or, you know, however, you know, it's a consumer thing.
[00:09:22] So probably you wouldn't call it AR. And then they had this Netflix moment of like, Oh, you know what? Actually sending out DVDs. I think that sucks. I think streaming this online, that's cool.
[00:09:35] So what did they start doing? They, you know, instead of renting out those textbooks in physical shape,
[00:09:40] they started to offer them basically online. Right. And with that business model came a lot of things like preparing them for you know, quizzes for exams, you know, helping with tutoring and they basically lay out a bunch of products on top
[00:09:55] that that students. Really liked,
[00:09:58] but Mikkel, which, which product did they like the most about Czech? Yeah,
[00:10:04] Mikkel: a high grade for no effort. They, they like cheating, apparently. They like cheating. So there, I think in my head, the simplest way to put it, and I put it in my takeaway, it's like, you know what? They monetized cheating. That's what they did. I remember studying at university fellow classmates of mine, they would take, pay for additional courses that just Sprinted through the material to make sure you had learned what needed to be learned before the exams you could pass.
[00:10:31] Right. That was like the entry point, not cheating, but actually a repetition of, of the learning. Right. And I think let alone the book industry, that's like a billion dollar industry. Just imagine all the students who really want to get into med school and need a high grade. And all of a sudden there's this company charging 20 bucks a month and with it, you can get answers to your test.
[00:10:57] Do you think people will want to use that? Well, yes. Yeah, they use
[00:11:03] that.
[00:11:03] Toni: think about the friction that probably most of us who had to study the old way,
[00:11:09] think about the friction we had to cheat,
[00:11:13] like they, they removed some of that friction
[00:11:15] and, and now you might wonder, well, how did that, how does that actually really work? Right. You kind of in the room, like everything is, you know, sealed and you just have a pen and a piece of paper. Well, enter COVID.
[00:11:26] Mikkel: Yeah. Yeah. Yep. What could possibly go wrong?
[00:11:30] Toni: Enter the pandemic and everyone being on an iPad or laptop. You know, totally, surely not cheating. And guess what they did,
[00:11:39] right? Kind of everyone basically,
[00:11:41] Mikkel: in North Carolina, I have this in North Carolina, just that state, they caught 200 students misusing the platform for one, for one cause. Just imagine, just imagine how many different universities, how many different courses and 201 courses. It's like,
[00:11:59] Toni: So
[00:12:00] Mikkel: And then misuse
[00:12:01] Toni: no, yeah, Misuse. yeah,
[00:12:02] Thank you very much. But the, the thing is obviously kind of, you have those digital tests, right? You
[00:12:06] kind of take the, it's, it's always a multiple choice in the U S you kind of copy paste the. The question and, and check, basically kind of gave you the answer. You
[00:12:15] clicked a done,
[00:12:16] Mikkel: The thing is also people are lazy. Like I heard this from a teacher of mine in what do we call it? High school, college doesn't matter. He was like, well, the best example of cheating I've seen is someone submitted an essay and then there was an argument. It was a solid essay, but then there was an argument all of a sudden that.
[00:12:31] We ladies feel strongly about, it was a guy who submitted the essay. Come on. Like we're also lazy. So of course you get caught. Right. I think the crazy thing about COVID, by the way, it just propelled their growth. Like they grew 54 percent all of a sudden. And I literally remember this noting, ah, there's a fast growing tech company.
[00:12:51] Should, should I maybe buy some shares in that? I was like, no,
[00:12:55] Toni: So
[00:12:55] Mikkel: get it. There's a,
[00:12:56] Toni: for people to kind of understand the magnitude. They were already public before COVID hit,
[00:13:02] Mikkel: yeah, there were probably before it was perfect.
[00:13:04] Toni: then, and then, you know, the, the, the revenues, which were like, if you're a public company,
[00:13:09] Mikkel: Yeah. Yeah,
[00:13:11] Toni: be substantial, right. And then as a public company. Revenue soared 54%.
[00:13:20] Like when was the last time that, you know, Oh, oh, and video Tony. Okay. Okay. You know that aside, but like, when was the last time for the public company to kind of just jump 50 percent in, in
[00:13:29] revenue? it's, insane.
[00:13:30] it's
[00:13:31] Mikkel: it's like a count accounting era era, but usually it's the other way. And then it's like very bad, very bad indeed.
[00:13:38] And it's also around the time when this company just exploded, right.
[00:13:44] In a positive way, their revenues just like boosted and all of a sudden you have chat, GBT come out. Like where were you in chat? GBT came out, Tony, do you remember?
[00:13:53] Toni: I was probably on LinkedIn.
[00:13:57] Mikkel: Yeah, yeah, you probably were. Yeah, that's that
[00:14:00] Toni: probably what
[00:14:00] happened.
[00:14:00] Mikkel: that tracks. No, but it's like you go from one extreme high to then a. Oh. And I'm not sure, by the way, do you think they, they had a meeting like someone called a meeting internally. What's his name? Rosen. Rosen. Rosen. R the CEO. Do you think he called a meeting and was like okay guys, did anyone see this chat, GBT thing?
[00:14:21] Should we be worried about this? Do you think that happened? I'm not sure,
[00:14:25] Toni: you know what? I think it did happen.
[00:14:26] Mikkel: You think so?
[00:14:27] Toni: I think it did happen, but the, you know, what people also kind of in the story need to understand is, you know, this was a 20 a month product. And 20 a month for a student to
[00:14:37] basically zero money. Has negative money 20 a month. This is actually kind of a lot.
[00:14:43] Right. And you know, back then this was double the, the, the cost of a Netflix.
[00:14:47] Like that that was 10 or 99,
[00:14:49] nine, nine bucks, 99 or something like this. Right. This was actually expensive. And, and they obviously justified this with like, you know, if this helps me get into med school,
[00:14:58] if this helps me, you know, the 50, 000 per semester that my parents are spending.
[00:15:05] to leverage that investment into actually a degree that works out for me.
[00:15:10] 20 a month is like a nothing burger to
[00:15:13] me, right? But still, still, it's expensive. Now, when you now enter Chachapiti to the whole thing, Mikkel, how much did Chachapiti cost them?
[00:15:22] Mikkel: I think it's about 0. 00
[00:15:25] bucks
[00:15:25] Toni: So, and, and obviously what happened with all of those folks, like, you know what?
[00:15:29] Actually I think I can cancel my checks subscription now.
[00:15:32] Mikkel: No, it's like you get one answer from chat TBT and you go like, okay. Yeah, good. Let's do that. Let's, let's, let's, let's do that. Actually. It's not like it, when it came, I remember the, I think the best example of AI. Was the Will Smith video. Have you seen this? The spaghetti. Will Smith eating spaghetti.
[00:15:50] And then it went from just a horror show to a, No, that's, that's Will Smith. He's eating spaghetti. That's, that's him. That's actually him. And I can just see like a student going like, Wait, this is like, I could have written that. No, actually I couldn't have written it because I didn't study. But you know, if I had studied, I could probably have written that.
[00:16:08] This looks legitimate. Let's, let's totally use this.
[00:16:10] Toni: So what happened? This is
[00:16:12] then basically what kicked off the. You know, consumers, students canceling this stuff like crazy. Right.
[00:16:19] Which makes absolute total sense, makes absolute sense. Kind of, this just doesn't, you know, it's not a viable product anymore. And I think this went then hand in hand with Google for some reason, I don't know, I'm not sure how Google was shafting them, but to, to a degree, kind of, that's, that's apparently kind of what
[00:16:35] happened.
[00:16:35] Right. So basically those two trends overlapping.
[00:16:39] And, and pretty much, I don't want to, so this is the interesting thing. Didn't kill the business. They're still doing
[00:16:44] like 100, 150 million a quarter, a quarter,
[00:16:47] in revenues. So it's, and, and profitable and so forth. Right. Kind of this company still exists, but
[00:16:52] basically got completely, you know, messed up in the
[00:16:55] process.
[00:16:55] Mikkel: But you also know how it goes. First, it happened slowly. Then it happened very fast all of a sudden. Right. So I think that's also potentially what could happen.
[00:17:03] I think one interesting takeaway from the story we just talked about was the whole, Hey, didn't they talk about this AI being a thing? Fun fact in 2022, they did they did in fact talked about a AI power tutor.
[00:17:14] Right. And just to paint a picture of why would an incumbent. Not go for this. Why, why are the incumbents so slow right now? And why are we seeing so many AI startups being funded? Basically it's because some of the decisions that are happening here, here in this scenario. So why would they not go for the AI tutor?
[00:17:31] What's what's, why is that not in their own interest? Well, you know, they have a contract today with Anthropic. They're paying a million bucks reportedly per week. Do you think that's good or bad for margins?
[00:17:44] Toni: Yeah.
[00:17:45] Mikkel: Yeah, that's
[00:17:46] Toni: And, and, and also like three years ago. And I think this is the, I can totally see how this kind of, this meeting went.
[00:17:53] Mikkel: Yeah, we just grew 54%.
[00:17:55] Toni: ah, guys, this is not a real thing.
[00:17:59] This Gen AI thing is going to blow over real quick. It's just a fad.
[00:18:03] Like who, you know, these guys going to come back real soon. It's just a correction in our stock price. Like, you know, I can totally see how this happened and, and you know, there were efforts internally to kind of build something like this.
[00:18:16] And basically was shut down for two reasons, I think. One is margins. Ah, that hurts a little bit. But the other one is also like, Oof, that's You know, we would be kind of disrupting ourselves.
[00:18:28] We would be cannibalizing ourselves to potentially doing this thing. And then, you know, see what happened.
[00:18:33] Like, kind of, this is, this is the Kodak Kodak moment here,
[00:18:36] right? Kind of, there's so many situations where it's called this, you know, innovators dilemma
[00:18:41] actually kind of where this is basically kind of kicking in. And I think what's frustrating here with this example, and we're going to get to how this is relevant for you, dear B2B, you know, listener what's frustrating with this example is there was already a product out there that was beating them, that
[00:18:59] was for free. It was already there. And they, you know, Chetty, we didn't even try and compete with them,
[00:19:05] right?
[00:19:05] It's not like, oh, we're going to build a Czech killer.
[00:19:07] That was not the idea, right? It just, it just was there. And them being stubborn and not jumping on this train. And what I think is interesting Duolingo, which is like the darling of, of this industry right now. They, they had a, like an AI kind of bot or two to, I don't, I don't
[00:19:24] know what kind of a response to AI within a month of
[00:19:27] chat GPT launching, right. Cause Sarah kind of another competitor in this space kind of had the same thing going on, right?
[00:19:33] So it's, it's really not that these Czech guys were like where we're blind or oblivious to this, but they just decided against it, which
[00:19:41] is so hurtful when you think about it.
[00:19:43] Mikkel: Yeah. But I can also see it. Like when you come on the back of that, almost drunk on your own success and you see this thing appears like, again, we just grew 50 something percent, like it's a cute little technology, but. Will people really trust it to write out magically an answer to a test that's really difficult to understand because it's like PhD level shit.
[00:20:04] It's like, you know, yeah, no, it can. Yeah, totally. That, that happened. Right. And I think that's also, they didn't lose all the users day one of chat GPT coming out. Right. It takes time for this to play out. I think the interesting thing is. They're still making money. I don't know if they still will be with this contract, by the way, but they also have a lot of cash sitting around.
[00:20:26] Apparently they still have a fighting chance.
[00:20:29] Like they also have a brand with some of these students. Maybe that's just dead now, right? Maybe it's just dead because it's JetGBT and they need to, to do something else or something differently. But I think it's just they, they do have opportunities to, to kind of change.
[00:20:41] Toni: For everyone kind of listening and thinking about this stuff, right? So what, what I think is interesting here is this company got, you know, messed up by the AI wave super early on,
[00:20:57] really early on. Why? Well, it was kind of text based and was a Q and A based. Product actually kind
[00:21:06] of check kind of, Hey, here's no, but, but think about this. Like, Oh, here's the question. My test.
[00:21:12] What's the answer to this, right? Kind of, this is like a, here's a question. I want to have the answer, right. Q Q and a based in this sense. And chat GPT just fitted this bill, like exactly like
[00:21:21] down to the T even kind of, Oh, help me write this essay.
[00:21:24] You know, these things, it was just perfect for that
[00:21:26] stuff. Right. Which is why I think check was one of the first companies
[00:21:31] that get messed up with
[00:21:32] this
[00:21:33] Mikkel: axed.
[00:21:33] Yeah. Yeah.
[00:21:34] Toni: But if you're now kind of think about it, like what are the second and third level order order facts here.
[00:21:38] It's like, well, there are industries that are still waiting for the infrastructure to be built for AI to actually be applied.
[00:21:46] We're seeing a couple of these things now happening,
[00:21:48] Mikkel: Yeah. You have Gong. Gong, I think it's also, it's not been named, but Gong is also suing an AI company that does call recordings. Right. So you're seeing some, some stuff happen now. Preemptively as
[00:21:59] well, I
[00:21:59] Toni: yes. And, and, and the point really is while. You are maybe right now feeling like you're sheltered from the storm
[00:22:07] Mikkel: Yeah.
[00:22:08] Toni: very likely. It's just a matter of time
[00:22:11] actually Very likely that's that's kind of how you need to think about it And the re again the reason why checker disrupted immediately was the overlap between those products was like immediately there
[00:22:21] if it's open eye Would have kind of went for a different use case to showcase their abilities.
[00:22:27] I don't know what,
[00:22:28] you know, not chat based basically. Then I think check would, you know, would have been still, you know, unaffected until someone brought out this chat basically. Right. And it's the same for, for everyone listening. It's like, whatever you're doing. Yes, ChatGPT didn't, so OpenAI didn't start, you know, they did start with chat and that maybe isn't overlapping with you right now, but as this evolves, it actually might be, right? And, you know, what, how, how are the ways you can think about, you know, trying to defend yourself from this? And I think let's use some of the very specific examples that we found that chat kind of failed to use actually. And you may, you might be able to adjust this a little bit to your world, right? So the first one, at least that comes to mind for me, right?
[00:23:11] Thinking especially around, you know, the competitor of, of, for example, Coursera and stuff check had only consumer subscriptions. They basically
[00:23:20] were only selling stuff to. Students, right, as students have you know, very low price elasticity.
[00:23:27] So they basically kind of want to jump
[00:23:28] Mikkel: They're not loyal. They're not
[00:23:30] loyal
[00:23:30] Toni: I mean, and, and they're also, you know, they're done with studying after.
[00:23:34] There are a couple of reasons why this was a, like a difficult segment to begin with. And then, you know, other companies in, in the space, they had, sure, they had direct relationships with the, with the students. They also sold courses themselves, kind of creating the material, not just relying on universities to use textbooks. And they also sold subscriptions directly to companies,
[00:23:53] right? Kind of tapping into the L& D budget. So while it might've still been as, you know, large share of their revenues for these other companies. It wasn't like 95%, which it was for check. Right.
[00:24:05] And I think if you think about your own business, depending on your size, and so if, if you're below 10 million, probably only have one product and don't get me wrong, but if you think about your own business, really, you know, start realizing which of my revenue streams is maybe most likely to be disrupted.
[00:24:20] And then start kind of having some idea of like, how can, how can we at least fortify the other pieces? Right. And I think this is, you know, diversifying sounds like so silly. It's, it's an investor stock thing,
[00:24:33] but I think this is a worthwhile thing to think about for your own business in this regard,
[00:24:36] Mikkel: But I think also when you look at most of the. Most of the businesses who made it past, let's just say unicorn, they actually have diversified. We've talked about multiproduct place previously on the show. Right. It's no reason to, again, I mentioned gone before they are more than just call recording by now.
[00:24:53] Right. At some point, maybe in five, six years from now, they're going to be a CRM. Like, it's a wonderful business for sure. But it's just to say like they, a lot of those companies that have staying power, they've diversified. They, they definitely
[00:25:05] have.
[00:25:05] Toni: but specifically Gong, right? So the
[00:25:07] company that they're suing is actually helping companies to record. Meetings
[00:25:13] very
[00:25:13] Mikkel: Yeah,
[00:25:14] and let's just say for the lawyers, we don't know if those are the two we've just
[00:25:17] Toni: we're pretty sure about it though, but it doesn't, it doesn't, it doesn't actually matter the, the thing is, the thing is you buy this, you know, you buy the products of this company and let's just say they are unrelated.
[00:25:29] Mikkel: Yeah.
[00:25:30] Toni: No, I'm not going to say that. I'm not going to say it. You can ping me, you can DM me if you want to know where you can buy it, but basically kind of as a company and they kind of give you an API to do call recordings,
[00:25:40] super, super easy. Then it can send this stuff to whisper, which is open the eyes transcription service, and then there are probably other subscription
[00:25:48] services to transcription services, and then you. Basically have, you know, parts of what Gong does,
[00:25:54] like, you know, if you, if you ask anyone in the space, what is Gong doing?
[00:25:58] Call recording, like
[00:25:59] immediately. Right. And, and, and that part, that part of their business is, is now very easy to replace using a couple of, you know, stitch together AI pieces. Right. So think about this stuff like critically. And then think about like, how can we diversify?
[00:26:15] How can we fortify and so forth?
[00:26:17] Right. Didn't do this. And then, you know, stock credit. I think another learning from the Czech guys is you know, to a degree they monetize cheating, right? Kind of,
[00:26:27] I can see how this was the blockbuster product. I can absolutely see it. And, you
[00:26:31] know, I don't actually necessarily blame them, I think for it.
[00:26:35] But this is what they did,
[00:26:36] right? Kind of, they, they meddled on a little bit, you know, the dark side here. And the problem that this created for them is It became difficult to create, you know, partnerships,
[00:26:47] Mikkel: Yeah. No, excited with the universities and
[00:26:50] yeah.
[00:26:50] Toni: exactly. It was more that the university started to actually try and ban check.
[00:26:55] Like that's actually what happened, right?
[00:26:56] Kind of it went the opposite direction, but obviously student loved it so much. They kind of,
[00:27:00] they found their ways around it, but you know, this is, this, in this case has been impeding them to kind of do business in different directions,
[00:27:07] right? and and I think you know, a smarter path for them to take.
[00:27:10] Could have been something in the direction of I think what comes to mind is something like Grammarly, right? Which, which isn't to a degree, it's not cheating, you know, using Grammarly in your emails, it just enhancing you,
[00:27:23] it just making you better.
[00:27:24] Right. Not only with some grammar checks, but also with like, Oh, you know. This sentence is structured like you're from Germany, Tony, and you're trying
[00:27:32] to, to write English and then you click a button and then it, you know, structures in the right way, right? Kind of
[00:27:37] those kind of enhancing ways of using I for, for you as a, as a human being, I think that is a smarter way to go around it instead of meddling in the really let's just say ethically dark end
[00:27:48] of the spectrum that, that checked it.
[00:27:50] Mikkel: I agree.
[00:27:50] And I think one important thing to note is like when dealing with transformational technology like this and the disruption that follows. We're seeing now the first domino fall. And it's the first domino. There are more waiting in line to go down. I think if, if it was me, I would be intending looking at what kind of invest companies are getting funding at the moment.
[00:28:15] You won't see a lot of the details because a lot will be in stealth. They might not want to reveal their true intentions at the moment. But it's pretty clear that there will be folks gunning for the big where all the money is. So CRMs watch out for sure, all the automation and data vendors also watch out, like where, where the money is, disruption will follow right now.
[00:28:35] And you basically need to have a bunch of scouts on the lookout for what and what investment activity is happening. Is there something in our space where we need to either just quite frankly outpace them with. The muscle you've built out in product in product team and sales and so on. Like, yeah, you need to, you need to really feel like you have arrows in your back right
[00:28:54] now.
[00:28:54] Toni: And the, and the thing is also and it's also kind of another learning, I think from the Czech guys is they had this, they had this meeting,
[00:29:02] they were, they were thinking about it,
[00:29:04] they were like, they're discussing it, they had a solution, you know, there were some engineers working on this project,
[00:29:10] like there was stuff actually going in the right direction. They just decided against it.
[00:29:15] Right. And, and I think this delaying of the AI shift or AI response, AI strategy, whatever you want to call it, I think that also, you know, bit them in the, in the butt,
[00:29:28] like kind of that, that's basically also what
[00:29:30] happened. Right. So
[00:29:31] Mikkel: also like it, it's also just interesting when you think about the structure of the business, like not even being willing to use it. In some of the production processes, but sticking with freelancers across the world to help produce some of these outputs. Don't get me wrong. It worked back then, but I think also this is the focus for a lot of business right now is, is to say, how can we reduce costs?
[00:29:53] And the reason this matters is you need to stay competitive. And if you are in a competitive scenario, which is for 99 percent of the business is the case and your competitor figures out how to do the same thing only at half the cost. They can start doing things very differently. All of a sudden they can live with a higher CAC.
[00:30:11] We talked about this in the past. They can lower the price. If that's a factor, they can go and hire more people. They can, they can basically out execute you now as a result of being more efficient with their cash. And so I think that's also just a very interesting kind of like, yeah, they, they made the decision to protect their margins and it screwed them.
[00:30:29] But you know,
[00:30:30] so
[00:30:30] Toni: I think for me, it's actually two, two slightly different things, I think one is executing an AI strategy, whatever, like, you know, it's a little bit fluff, but. Trying to kind of figure out what to do yourself, kind of
[00:30:42] what product to build and how to adjust your go to market based on that. Right. Because you can, that can have an impact on pricing in either direction, but you can, I think the other aspect for me is the very specific that you mentioned kind of protecting your margins, right?
[00:30:54] It's like, you know, I'm, I'm sure that margins are still great
[00:30:58] but it's just 90 percent less revenue, you know, it's, and, and, and there's, there's kind of a thing here, which really is again, the, the innovators dilemma and, you know, all of that stuff. Like to a degree, you have to, you have to be willing to sacrifice some of your revenues in order to make the
[00:31:13] shift work out because otherwise other people will swoop in and just do it for you.
[00:31:16] Right.
[00:31:17] and and I think this is, I think out of all of these things, this one is probably the most difficult. It's the most difficult, you know, which, which CRO wouldn't get fired. If you came to your, to your CEO and be like, Hey, we need to do this thing. It's going to cut our revenues by
[00:31:31] 80%. It sounds like a good idea.
[00:31:33] yeah, we should totally do that. Right. It's kind of, it's really difficult. All of our incentives are, you know, it's, it's so crazy against the grain that I think trying to you know, do that stuff, it's so difficult. It's so difficult. And I think this is by the way, also the reason. Why other companies can disrupt you
[00:31:53] because they don't have that problem.
[00:31:55] They don't, they don't have the path dependency. They don't need to walk back.
[00:31:59] They just need to walk forward. Right. Which is such an easier thing for everyone to do.
[00:32:02] Mikkel: I, by the way, also think that for some of the bigger, this is like definitely the bigger companies out there, what they're doing in their playbook, just to drive home the point they basically have a investment arm that invests in startups in their area. So if you have pharma company, you're going to invest in pharma companies.
[00:32:22] Right. Because you also have the know how and expertise, and it's also a great way to protect yourself from being disrupted. You own a piece of it. Right. And I think that's just to drive home the point that this truly matters. And again, we can talk about all the functional fixedness and all the things like Tesla and auto industry is another great example.
[00:32:38] Traditional audit industry depends on working with suppliers to develop the software and develop all these pieces. Super difficult. Tesla owns the entire thing. They just develop it done. Right. And I
[00:32:49] think,
[00:32:49] Toni: And the stock dropped 15 percent yesterday.
[00:32:51] So,
[00:32:51] Mikkel: yeah, yeah, yeah. But I think you just have to look at your business with very different eyes and you need to be very, I think, ruthless to start protecting your business or very smart in terms of the next
[00:33:04] steps you
[00:33:05] Toni: I think what I would say is it's, it's less ruthless and smart. It's more it's so difficult, but to a degree you have to take off your pink tinted glasses.
[00:33:16] And it's so difficult to do that
[00:33:17] because, Oh, I don't, I don't have them on. How's your business going? It's going fantastic. You know, it's like, yeah, no, I mean, we're all totally biased and especially as executives, and I think I've said this, you know, a couple of times before, we're so geared towards always telling the best possible story and kind of motivate everyone and defend ourselves in the boardroom and do all of these things,
[00:33:37] trying to step out of that.
[00:33:39] To assess your business like really and
[00:33:41] be critical about this. I I'm at this point now where I believe. You can't do it. I believe that. And I wouldn't even, you know, the next thing that I will try, by the way you know, to, to solve this, and I don't think it's a great, great solution for everyone, you know, other people get in consultant, but guess who pays the consultant?
[00:34:01] You know, it's like, it's still you. And
[00:34:02] they're going to tell you, it's a little bit of a, you know, version of ChattyBT, right?
[00:34:07] ChattyBT is always super positive. Hey, ChattyBT, I have a
[00:34:10] business idea. It's a good idea. It's a perfect
[00:34:12] idea. I think what you should do sometimes is invite disgruntled employees back in like executives that do that have an understanding of the business and ask them what they think is going to happen.
[00:34:24] And you know what the, the reply will sure will be maybe a little negatively, you know, tinted and so forth, but I think it might actually be closer to the truth than, than what you're telling yourself, right?
[00:34:35] Kind of try and get that external objective. I don't give a shit about you you know, kind of perspective in to help you, you know, at least push yourself a little bit to, to,
[00:34:46] see the reality from a slightly different angle.
[00:34:48] Mikkel: Speaking of pushing yourself if you've enjoyed this episode, if you've enjoyed this show let alone how idiotic the hosts are and you prefer that it was an AI show, do leave a review do leave a review. It helps us grow the show and we appreciate it a great
[00:35:01] deal. I think this was this is a great show.
[00:35:03] We're definitely gonna lift the quality and beat out all these AI hosts, all these AI shows out there. I think Hopefully we won't get disrupted. We just need to protect our
[00:35:10] margins,
[00:35:10] Toni: Hey, this is a fantastic show. This is going to, this is going to grow until forever. No one is ever gonna, you know, okay, everyone
[00:35:16] hit the subscribe button helps a lot. And thanks a bunch, everyone. Bye bye.
[00:35:20] Mikkel: Bye.