Chegg 2014 Annual Report Download - page 60

Table of Contents
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transition, especially during peak periods, we could suffer damage to our reputation or brand, loss of students, colleges and
brands or loss of revenue any of which could adversely affect our business and financial results.
Growing our student user base and their engagement with our platform through mobile devices depends upon the effective
operation of our mobile applications with mobile operating systems, networks and standards that we do not control.
There is no guarantee that students will use our mobile applications, such as the mobile version of our website,
m.chegg.com, Chegg Flashcards and Chegg Textbook Solutions, rather than competing products. We are dependent on the
interoperability of our mobile applications with popular mobile operating systems that we do not control, such as Android and
iOS, and any changes in such systems that degrade our products’ functionality or give preferential treatment to competitive
products could adversely affect the usage of our applications on mobile devices. Additionally, in order to deliver high quality
mobile products, it is important that our products work well with a range of mobile technologies, systems, networks and
standards that we do not control. We may not be successful in developing relationships with key participants in the mobile
industry or in developing products that operate effectively with these technologies, systems, networks or standards. In the event
that it is more difficult for students to access and use our application on their mobile devices, or if students choose not to access
or use our applications on their mobile devices or use mobile products that do not offer access to our applications, our student
growth and student engagement levels could be harmed.
If we are not able to maintain the compatibility of our eTextbook Reader with third-party operating systems, demand for our
eTextbooks may decline and have an adverse effect on our operating results.
Our eTextbook Reader is designed to provide students with access to eTextbooks from any device with an Internet
connection and an Internet browser, including PCs, iPads, Android tablets, Kindles, Nooks and mobile phones. Our eTextbook
Reader can be used across a variety of third-party operating systems. If we are not able to maintain the compatibility of our
eTextbook Reader with third-party operating systems, demand for our eTextbooks could decline and revenue could be adversely
affected. We may desire in the future to make our eTextbook Reader compatible with new or existing third-party operating
systems that achieve popularity within the education marketplace, and these third-party operating systems may not be
compatible with our designs. Any failure on our part to modify our applications to ensure compatibility with such third-party
operating systems could reduce demand for our products and services.
If the transition from print to digital distribution does not proceed as we expect, our business and financial condition may be
adversely affected.
The textbook distribution market has begun shifting toward digital distribution. If demand for eTextbooks accelerates
more rapidly than we expect, we could be required to write-off excess print textbooks for which the rental demand has eroded
or make additional payments to Ingram under our strategic partnership agreement. Further, our sale of used print textbooks
represents a substantial source of cash from investing activities, and a substantial diminution on the value of these assets due to
a shift in demand toward digital, or any other reason, could materially and adversely affect our financial condition. Conversely,
if the transition to digital distribution of textbooks does not gain market acceptance as we expect, capital requirements over the
long term may be greater than we expect and our opportunities for growth may be diminished. In that case, we may need to
raise additional capital, which may not be available on reasonable terms, or at all, and we may not realize the potential long-
term benefits of a shift to digital distribution, including greater pricing flexibility, the ability to distribute a larger library of
eTextbooks compared to print textbooks and lower cost of revenues.
If publishers refuse to grant us distribution rights to digital content on acceptable terms or terminate their agreements with
us, or if we are unable to adequately protect their digital content rights, our business could be adversely affected.
We rely on licenses from publishers to distribute eTextbooks to our customers. We do not have long-term contracts or
arrangements with most publishers that guarantee the availability of eTextbooks. If we are unable to secure and maintain rights
to distribute eTextbooks to students upon terms that are acceptable to us, or if publishers terminate their agreements with us, we
would not be able to acquire eTextbooks from other sources and our ability to attract new students and retain existing students
could be adversely impacted. Some of our licenses give the publisher the right to withdraw our rights to distribute eTextbooks
without cause and/or give the publisher the right to terminate the entire license agreement without cause. If a publisher
exercises such a right, this could adversely affect our business and financial results. Moreover, to the extent we are able to
secure and maintain rights to distribute eTextbooks, our competitors may be able to obtain the same rights on more favorable
terms.
In addition, our ability to distribute eTextbooks depends on publishers’ belief that we include effective digital rights
management technology to control access to digital content. If the digital rights management technology that we use is