Chegg CEO Rashid applies Netflix concept to textbooks

SANTA CLARA, Calif. -- Osman Rashid knows what it means to be a cash-strapped college student. He gave blood and cleaned toilets for money when he was one.

Now, Rashid is building a business that challenges the $10 billion college textbook industry and cuts costs for students. The company he co-founded, Chegg, is a leader in the burgeoning arena of college textbook rentals. The business model? Rent out college textbooks via a website, deliver them to students via UPS and save them 50% to 70% off the cost of buying used or new books.

The 18-month-old service has hundreds of thousands of customers on 4,000 U.S. campuses, says Rashid, 38. While financing has tightened for businesses, Chegg just landed $25 million from venture-capital firms led by heavyweight Kleiner Perkins Caufield & Byers. Even a recession doesn't dampen Chegg's outlook. More people look to save money or return to school when jobs are scarce.

"We are literally blazing a trail," says Rashid, Chegg's CEO. Growth has outrun projections. Profitability is probable in a couple of years, he says. Rental prices are based on a book's cost, popularity, age and condition. A book costing $100 new or $65 used costs about $32 to rent.

The simplicity of the idea, modeled after online movie rental pioneer Netflix, attracted Kleiner Perkins. "When you describe this idea to someone, they immediately get it," managing partner Ted Schlein says. "Chegg is one of those typical Silicon Valley stories. Let's create a new business to solve an old problem."

A busy place

Chegg is headquartered in a four-story building in an office park where some rents are half what they were in headier days.

At 11 a.m. on a recent Monday, the building's hallways and elevators are empty. But step through the doors of Chegg, and the place literally hums with the sounds of clicking computer keys, ringing phones and snippets of conversations.

On one side, a dozen employees sit almost shoulder to shoulder fielding calls from customers in New Jersey, Michigan, California. Across the room, engineers ponder how to make the mechanics of the website easier, the service faster, the pricing more attractive.