Uber-executive Dan Rosensweig, 48, has had more lives than most cats.
Ten years ago, Rosensweig was still president of Ziff Davis, where he spent a total of 18 years. He then went on to become the chief operating officer of Yahoo; a principal at the private equity firm Quadrangle Group; and the president and CEO of Red Octane, the Activision unit responsible for Guitar Hero.
In February, Rosensweig made another move, becoming the CEO and president of three-year-old Chegg.com, a startup that claims to be “number one in textbook rentals,” and that has raised a stunning $144 million in cash and debt to secure that position, including from Kleiner Perkins, Foundation Capital, and Insight Venture Partners.
I talked with Rosensweig yesterday morning about his recent trajectory, what Chegg is planning to do about the iPad, and how he’d rate Yahoo’s performance these days.
Can you provide a sense of how big a company Chegg is right now?
We have about 120 employees in Santa Clara [Calif.]; almost all are full-time employees except for those in our 6,000-square-foot warehouse in Kentucky [where Chegg recently took over an old Linens ‘n Things property that houses its books]. It’s a combination of engineering, marketing, customer service, customer advocacy [employees] and backroom stuff.
You’ve raised a lot of money. Can you share any revenue numbers?
No, but if you think about it, the college textbook market is about a $10 billion market, and we’re really going after 50 percent of it, which is the used book market. Most of the students we get are kids who couldn’t have afforded new books.
[Through a partnership with the nonprofit conservation organization American Forests] we plant a tree for every order, and we’ve planted 2.5 million trees in our almost three years of existence, so you can start to size this up and understand [our sales].
We’re trying to create incredible value for American families and students by making education affordable. On top of that, the fact that we’re able to be environmentally friendly, both through our rental program and by planting a tree for every order, is very much in the spirit of the company we want to be.
Is the company profitable or has it been at any point?
We don’t discuss that, but all the cash we’re raising at this stage is to fund growth by acquiring more books. It’s not necessarily to run the operations, so you can take from that what you like.
You have more than 4 million titles. Where do you get your books?
We get them from multiple sources, including direct from publishers, from wholesalers, and from the marketplace. We have very sophisticated algorithms that let us know what books we have in the warehouse and the best place to source those books, which we think is a competitive advantage.
I’ve read that you sometimes adjust your pricing more than 6 million times a day at times, using what are perhaps those same algorithms. Is there any concern that you could alienate your customers by incrementally raising, as well as lowering, prices based on supply and demand?
Our algorithms allow us to predict demand on a nationwide, campus-wide basis to ensure that our prices are always the most competitive.
As for alienating customers, I think we’ve learned this from eBay and Amazon and Yahoo that the world is a demand and supply market run on variable pricing. And the lower we can source things, the less we can sell them for. We’re very much pinned to [this] marketplace model, and we think we can win because we can create the greatest value. We’re generally a lower price model than others.
Speaking of competition, a lot of startups are now competing in this same space, including Bookrenter.com, a company that has raised just $6 million so far. I read on TechCrunch that Chegg’s attorneys sent Bookrenter a threatening letter over Bookrenter’s claims to be number one in textbook sales, a move that some see as a bullying and unnecessary tactic. Why did Chegg bother?
To be frank, I hadn’t even started at the company yet, but we feel it’s important that the consumer has all the facts, so whenever we believe that facts are being contradicted, we want to make sure we clarify them.
Consolidation in your industry seems inevitable. Do you see acquiring some of these smaller competitors that you’re trying to keep honest?
A roll-up strategy? This is a whole, new emerging category, and frankly, the more competitors right now the better, because it really does educate the marketplace. We also think competition makes us a better, smarter company, and we think we have tremendous advantages because of our market share, our scale, our funding, and our leadership. So we’re extremely comfortable that a competitive market works to our advantage at this point and that the market will take whatever turn it will take.
Markets generally consolidate when growth stops. The rental market is a small subset of the used book market, but we’re all seeing meteoric growth at this point in time, so consolidation doesn’t make sense right now.
What do you make of Barnes & Noble now getting in to the textbook rental game too?
It validates the marketplace. I think it suggests that it’s going to continue to be competitive. But if you look at the landscape, across about 8000 campuses, we’ve rented at least one book at 6,500 of them.
How are you reaching students?
We have a sophisticated e-commerce group of people, then we get a tremendous amount of referrals because we have such a high satisfaction rate. We also have a series of programs by which students make money by selling us their books and [a marketing program called] Chegg Champions [that pays students $5 every time they refer a new customer to the company].
Naturally, there’s a lot of talk that those same students will eventually be toting all of their textbooks around in one device, possibly the iPad. How are you preparing for that possibility?
There’s no doubt, particularly when you live in Silicon Valley, that you should bet on the inevitable. It will happen. There are a lot of variables around when, though. Lots of people have been projecting the same for Netflix for nine years.
We know that online textbooks will be a part of the market and a growing part of the market. It won’t happen right away, though. More, the audience we deal with now is trying to save money. They aren’t going to buy an expensive device then fill it up with content. But we’ll eventually be able to provide them content in whatever format they want and in fact we think it’s exciting. It might expand the market a little bit.
By then will you be a public company? Given how much you’ve raised, is that something that you’re now tasked with trying to make happen in a certain timeframe?
No, we’re on a mission to help American families get access to the tools and information that their kids need, at prices they can afford — and to help the environment while we do that. IPO, private fundraising, debt — these are all things that are available to a company that’s growing the way we’re growing, but we’re not focused on any particular outcome right now and our investors are supportive of that.
Might you raise more?
We have more than enough capital to do what we need to do.
You didn’t stay long as the CEO of Activision’s business unit RedOctane. How would you characterize that experience, and why did you leave?
The experience was a blast, every aspect of it. I’m a music freak and Activision is an incredibly powerful growth company.
It’s every guy’s dream to feel like you’re part of the music industry, and my expectation was to stay there. But a once-in-a-lifetime opportunity came along [with Chegg]. I didn’t know after Yahoo if another of these great opportunities would be available.
Who recruited you?
Silicon Valley is a small place, and everyone knows everybody. It was a combination of Ted Schlein and Juliet Flint of Kleiner Perkins and John Doerr and Paul Holland of Foundation. They’re all people who know me, and I know them, and they make unbelievably amazing investments and when this group comes around and pitches you hard, you listen.
You also spent a couple of years at Quadrangle Group. What did you learn as an investor?
Being an operator you have a perspective and it’s an incredibly valuable lens. At Quadrangle, you also learn about financial discipline and understanding market position and how to invest in the future, things that have helped me feel really comfortable about Chegg’s opportunity. The experience also really solidified my belief in being associated with fun growth companies that are using technology to their advantage.
There was some speculation that when Jerry Yang left Yahoo, you’d be asked to come back and replace him. Were you?
You might have noticed that I never comment on anything relating to Yahoo. I love Yahoo. I’m in touch with all the former executives I worked with. It’s the greatest professional experience I’ve had — until this one. I’m proud of those five years; I enjoyed my time there.
What would you rate [CEO] Carol Bartz’s performance thus far?
I don’t think it’s appropriate for anyone who has been there to comment. I will say I wish them a lot of success and that I’ll continue to spend a lot of my ad dollars at Yahoo because I know it works. [At RedOctane] I switched 60 percent of our TV budget to the Internet, and Yahoo and Facebook were the beneficiaries of that because they work and I want them to succeed.
