Chegg 2014 Annual Report Download - page 57

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If our relationships with the shipping providers, publishers, wholesalers or distributors that deliver textbooks directly to our
students are terminated or impaired, if shipping costs increase or if these vendors are unable to timely deliver textbooks to
our students, our business and results of operations could be substantially harmed.
We predominantly rely on United Parcel Service (UPS), to deliver textbooks from our textbook warehouse and to
return textbooks to us from our students. To a lesser extent we rely on FedEx for delivery of print textbook rentals and on
publishers, distributors and wholesalers to fulfill textbook sales orders and liquidations. We are subject to carrier disruptions
and increased costs due to factors that are beyond our control, including labor difficulties, inclement weather, increased fuel
costs and other rising costs of transportation and terrorist activity. If the delivery failures or delays or damage rates for our
textbooks increase as a result of any such factors, this would increase our cost to deliver textbooks. In addition, if our shipping
vendors increased shipping costs for our textbooks, our gross profit could be affected adversely if we elect not to raise our
rental rates to offset the increase. If UPS were to limit its services or delivery areas, such as by the discontinuation of Saturday
delivery service, our ability to timely deliver textbooks could diminish, and our student satisfaction could be adversely affected.
If our relationships with our shipping vendors are terminated or impaired or if our shipping vendors are unable to deliver
merchandise for us, we would be required to rely on alternative carriers for delivery and return shipments of textbooks to and
from students. We may be unable to sufficiently engage alternative carriers on a timely basis or on terms favorable to us, if at
all. If we fail to timely deliver textbooks to students, they could become dissatisfied and discontinue their use of our service,
which could adversely affect our operating results.
We face significant competition in each aspect of our business, and we expect such competition to increase, particularly in
the market for textbooks.
Our products and services compete for students, colleges and advertisers and we expect such competition to increase,
as described below.
• Products and Services for Students. The market for textbooks and supplemental materials is intensely
competitive and subject to rapid change. We face competition from college bookstores, some of which are
operated by Follett and Barnes & Noble, online marketplaces such as Amazon.com, eBay.com and Half.com and
providers of eTextbooks such as Apple iTunes, CourseSmart, Blackboard and Google, as well as various private
textbook rental websites. Many students purchase from multiple textbook providers, are highly price sensitive
and can easily shift spending from one provider or format to another. As a consequence, our print textbook
business competes primarily on price. Our eTextbook business competes on price, selection and the functionality
and compatibility of our eTextbook Reader across a wide variety of desktop and mobile devices. With respect to
our other digital offerings, our competitors include companies that offer students study materials and educational
content such as publishers, Web Assign and other tutorial services, job boards, and other online career guidance
services.
• Enrollment Marketing Services. With respect to our enrollment marketing services, we compete against
traditional methods of student recruitment, including student data providers such as standardized test providers,
radio, television and Internet advertising and print mail marketing programs. In this area, we compete primarily
on the basis of the number of high quality connections between prospective students and institutions of higher
learning we are able to provide as well as on price.
• Brand Advertising. With respect to brands, we compete with online and offline outlets that generate revenue from
advertisers and marketers, especially those that target high school and college students.
Our industry is evolving rapidly and is becoming increasingly competitive. Many of our competitors have longer
operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other
resources than we do. Some of our competitors have adopted, and may continue to adopt, aggressive pricing policies and devote
substantially more resources to marketing, website and systems development than we do. In addition, a variety of business
models are being pursued for the provision of print textbooks, some of which may be more profitable or successful than our
business model. For example, a recent Supreme Court decision may make it easier for third parties to import low-cost “gray
market” textbooks for resale in the United States, and these textbooks may compete with our offerings. In addition, Follett has
partnered with some colleges through its includED program, which allows schools to deliver required course materials directly
to students by including them in the cost of college as part of tuition and fees. Such strategic alliances may eliminate our ability
to compete favorably with our print textbook rental business because of the added convenience they offer to students, which
may result in reduced textbook rentals, loss of market share and reduced revenue. In addition, our competitors also may form or
extend strategic alliances with publishers that could adversely affect our ability to obtain textbooks on favorable terms. We face
similar risks from strategic alliances by other participants in the education ecosystem with respect to our digital offerings. We