Pearson PLC (LSE:PSON) and US rival Chegg Inc faced massive share price losses on Tuesday after the latter broke the ice and gave investors a first hint of how artificial intelligence was affecting the education sector.
“We now believe it [ChatGPT] is having an impact on our new customer growth rate,” Chegg chief executive Dan Rosensweig admitted after the bell on Monday.
His confession that AI had finally begun to take its toll on education firms opened the floodgates for investors, prompting Pearson to fall 15% and Chegg itself by nearly 50% on Tuesday.
Investors were worried that the increasing popularity and availability of language models, led by OpenAI’s ChatGPT record-breaking rise to 100mln users in January after just two months, may ultimately push out the need for textbook and online tutoring providers.
After all, why buy a textbook when you could just access ChatGPT - a language model which can pass a host of US exams itself anyway - for free?
Education embracing AI
Given the uncertainty surrounding AI, Rosenweig warned it was “too early to tell” how chatbots would affect Chegg’s operations in the long term.
Rosenweig was sure that Chegg would “aggressively and immediately” embrace AI though, as he cited language models as the “next big” technological shift, following the development of the internet and mobile phones.
CheggMate, Chegg's own language model built using ChatGPT, was released last month as an effective personal tutor for students.
“The combination of Chegg’s experience over the last 13 years […] coupled with the real-time conversational nature of ChatGPT, will establish CheggMate as a powerful and distinctive learning tool, offered exclusively from Chegg,” Rosenweig said.
Pearson, the world's largest education company, has made moves to adopt AI too meanwhile, offering courses aimed at educating people on how to use chatbots, admitting: “AI is here – and here to stay.”
A spokesperson from the education giant argued Pearson was a “fundamentally different business” to rival Chegg though, and that ChatGPT did not actually pose a threat, given the responsibility of writing courses largely falls on its lap.
“The difference is that Pearson provides the content and sets the questions, whereas Chegg and ChatGPT provide answers to those questions,” JP Morgan analysts explained.
Where Chegg has found itself playing catchup to produce an AI version of tutoring services, something AI very much threatens to do anyway, Pearson boss Andy Bird suggested his company was well positioned to take advantage.
“The output of these generative AI models is largely predicted by the quality of the data sets that are inputted into them,” he said.
“We are the owners of some very rich, pure data sets — when you start to input them into generative AI models, you get better outputs.”
JP Morgan analysts agreed, pointing out that Pearson’s programmes “have to be followed and consumed for about 70% of higher education courses”.
“While ChatGPT could be seen as an alternative for students seeking answers to their homework, we do not see it as an alternative to Pearson’s [products],” the bank added.
Echoing the sentiment, Deutsche Bank commented: “We believe Pearson has been oversold on the back of Chegg's AI comments.”
Virtual language tutor Duolingo Inc, another faller after the Chegg comments, has also already adopted AI, announcing a paid subscription last month for those wanting to access tailored, conversational-like feedback on the app.
Whether it be teaching and publishing about AI, advising on careers in the field or simply using it to replace existing tools, education firms have already begun adopting the language models en masse.
The World Economic Forum even claimed AI could be used to complement education, giving teachers the chance to automate some administrative tasks and free up time.
“We see the potential of AI to accelerate the long overdue transformation of education systems,” the lobby group said, echoing similar comments from Chegg that language models can provide students with otherwise unavailable support.
Citi analyst Thomas Singlehurst suggested AI still had a way to go meanwhile, explaining it is currently “a great tool for cheating,” but “less good (for now) for content creation and assessment”.
“Chatting with ChatGPT might be absorbingly real,” chief executive of analytics firm Oxylabs, Julius Černiauskas added, “but so are the limitations,” especially “when processing anything that doesn't fit into pre-made logic”.
Singlehurst suggested it was likely AI would continue to “weigh on sentiment for the broader educational services space,” though this would be short term, as the true prospects of language models come to fruition.