I was struck a BBC forum this morning asking whether users would be prepared to pay for an online edition of The Times newspaper. Admittedly, there is some bias as readers of the BBC news site are likely to be strongly in favour of free online news.

Still, the naive assumption of 99% of the posts that widespread, high-quality news will still be available if no-one pays is astounding.

Not a single comment here has pointed out that this is not about greed on behalf of News Corp; it’s about survival.

Every mainstream newspaper in the UK is loosing money at an increasing rate. At current projections the Independent, Evening Standard and most local newspapers will be close down by the end of 2010 (even with the cash injected by Lebedev). The Guardian, Times and Telegraph may not last 3 years without a new income stream. That’s because few people click on the online adverts, and all that writing, photographing, editing and web development still costs money.

So if the posts here are to be believed, and users baulk at paying for the online edition the options for getting British news in 5 years time there will be a stark choice:
(a) source news from a haphazard stream of opinionated bloggers
(b) rely on a monopoly output from the BBC (which will likely decrease due to cuts)

There won’t be a newspaper to buy at your local store.

And I feel strongly because the same argument applies to educational content in the longer term. Yes, a group of enthusiastic amateurs have always and will always publish their educational ideas for free, but if teachers want a reliable, high-quality range of resources they have to pay for it online.

Over the last year there has been fevered speculation about what the world’s fastest growing internet company is really worth. $10bn, if judged by Microsoft buying a tiny stake of 1.6% in 2007. $15bn, if judged by the 2% stake bought by a Russian investment group in 2009.

But the growth in users has slowed (unless Facebook actually starts giving free smartphones away in India and China), and like any maturing business it needs to be valued on what cash it is actually generating for shareholders.

So firstly, the top line. Facebook gets around 260 bn page views per day.

By a few simple experiments with their advertising platform I reckon the average click through rate for their adverts is just below 0.01%. They serve 3 ads on each page, so that means 1 in around 3,500 pages could be revenue generating for them. But that assumes they have enough advert inventory to keep showing new ads to their users (who get bored easily); perhaps safer to assume only 1 in 5,000 pages generates click-through revenue (or the equivalent).

We’ll assume the average click-through advertising rate is 30 cents.

$0.30 x 5m clicks = $1.5m per day = $550m per year.

The costs are not insubstantial either though: 40,000 servers – which probably cost the best part of $200m to buy and set up – and storing maybe 100 petabytes of images, video and log data (80bn images alone).

There are also 250 engineers and support staff, which is about $60m of annual cost.

So we could be assume that their total operating expenses are around $200m a year. That still leaves a healthy profit of $250m.

That doesn’t account for any revenue from some of their more sophisticated cross-sell and data-mining ideas – which have caused such user outrage. Assuming they can find a non-contentious way to double the profits over a few years, and maintain their pageviews (if not their share of global traffic), the business could easily be valued at 20x EBITDA, which gets you to … $5bn.

So it looks like Facebook needs to go some way to prove it’s worth, mainly because not enough people click on ads. That’s why we haven’t served ads at Teachable so far: only one is a few thousand users actually find them useful.

So Becta are officially gone in the autumn: by closing the quango the government hopes to save £80m.

And beyond that the education department’s budget will be cut by another £590m. The Chancellor has said that schools’ funding, the Sure Start programme and spending on education for 16-19-year-olds will be protected. But that leaves a lot of the Education budget protected:

1. Sure Start: £1.8bn
2. General Schools Spending: £31.7bn
3. Teachers’ pension scheme: £10.7bn
4. Young People’s Learning Agency (the 16-19 part of Learning and Skills Council): £6.5bn
5. Academies and Specialist Schools: £1.1bn

That means only £9bn out of a total £61bn Education budget that can be cut. So that £590m will be a 7% cut of everything else.

If you assume that the Building Schools for the Future (BSF) programme will continue in some form (or at least that many contracts have already been signed and won’t be reneged on), then there is only £5bn left unprotected – and 13% of that will be cut.

If you work in a quango or agency (or a supplier company) that gets publicly funded outside of these protected areas, I would be pretty worried right now!

The unknown part is how much of what these quangos do is seen as really essential, and will just be reabsorbed in a re-organised Department of Education (i.e. Becta employees become DfE employees) and how much will just be cut loose.

And let’s be honest; the government will need to reduce spending again by double the amount next year, so by the end of 2011 over 40% of those ‘non-core’ activities of the Education department could have ended.

As someone who has filled in countless internet forms I accept my email address is probably known to half the world’s spammers, and so I’m used to dubious emails turning up from across the globe. But nothing could prepare me for the missive this morning from a budding Indian entrepreneur.

“i am komal prasadplease inves ment in this enterprises 009310336633 in india read this file stevi product”

Now i’m sorry, but if I get a link request to a new educational website with an errant apostrophe I generally judge them unworthy. To get an appeal for serious investment from someone who’s never heard of punctuation is more than laughable. I love the spirit of someone trying to start a Stevia (natural sweetener) cultivation by appealing to Western wallets, but it took me three reads to work out that the sentence had meaning at all. So no, Komal, I can’t investment in your enterprises.

But then he has got my attention..

Last week the announcement came that Daniel Kinge, founder and manager of Sparklebox.co.uk, has been convicted of a second count of downloading and storing child pornography. Although there have been rumours and chatter since 2007, it seems most were willing to give him the benefit of the doubt. As one forum post puts it:

Basically its a nice chap who was a teacher but quit to do Sparklebox full time. He makes teaching resources which you can download for free.

I’m afraid not, fellas. He did it to make money out of advertising (so yes, every time you click on you are boosting his income in jail), and possibly to build a profile and reputation to approach children.

One comment Teachable is tired of hearing is that because we charge our users for access to files, the service is somehow less useful to teachers. At the Teachmeet BETT 2010 meetup last week we got a couple of comments along the line of “chargeable product = bad, ad supported = good”. Every teaching website out there needs funding, either from:

1. Advertising
2. Government subsidy
3. Charging end users

We believe advertising alone is both insufficient to run a good service, and can lead to conflicts of interest when trying to impartially offer educational content. Government subsidy is likely to run out in the UK pretty fast in 2010, leaving 3 as the only viable business model. We are proud to charge our users for teaching resources and half that money goes to contributors.

Unless, like Sparklebox, it’s not really a business at all, but something altogether more murky.

Teachable was shortlisted for two start-up awards in 2009: Seedcamp, a pan-European venture capital competition, and Inspire for businesses in Hampshire. We were proud to be part of both, but it’s our New Year’s resolution to win one in 2010!

We really seem to be getting around now Teachable is growing, and last month I was in India as part of the British delegation for the Worddidac India 2009 show in New Delhi.

We now have nearly 1,000 members in India, and a couple of pilot schools. What struck me most on my visit was the vibrancy of the low-cost private schools starting up across every state. Demand from aspiring parents for a better education for their children, but no state subsidy on offer, has let to some imaginative ways of delivering good classes cheaply over long distances.

There were many providers there offering to really ‘substitute’ local teachers with video streams and computer-based learning, but we felt the longer term need is for training and inspiration for the teachers themselves. Something Teachable hopes to get into.

There was a good quote yesterday from Sir Terry Leahy, chief executive of Tesco, on efficiency in schools. He’s not running education, and has no say on how budgets are spent, but as one of the largest employers of school leavers his views should count for something.

“One thing that government could do is to simplify the structure of our education system. From my perspective there are too many agencies and bodies, often issuing reams of instructions to teachers, who then get distracted from the task at hand: teaching children.
“At Tesco we try to keep paperwork to a minimum; instructions simple; structures flat; and – above all – we trust the people on the ground. I am not saying that retail is like education, merely that my experience tells me that when it comes to the number of people you have in the back office, ‘less is more’,” he said.

Whatever you think about Tesco’s takeover of British retailing, you have to admit they know something about efficient organisation and lean management. For a company like Tesco, every unnecessary form-filler in the back office is an extra few pence on your loaf of bread. The same is true in schools; it just isn’t so obvious. Every extra pound spent by central government on ‘initiatives’ and advisors is one less pound going into teaching and teaching resources.

At Teachable we simply believe that every pound of the billions spent on schools each year should count, and that procuring teaching resources from teachers directly is by far the most efficient way spending this bit of the budget.

There’s lots in the news today picking up a survey by the Local Government Association showing a shortage of state school places, supposedly because the recession is forcing privately-educated pupils into the state sector.

We don’t think that’s true.

The reality, and contrary to what we predicted last autumn, is that private schools in the UK are doing OK. An Economist report pointed out that numbers of pupils at independent schools is steady this year. Parents try hard not to change schools if they possibly can … but may think twice about starting pre-school children in a fee-paying school. So, in the 1990s, the number of independent school places didn’t drop until 3 years AFTER the recession, and then only by around 3%.

What is happening is that the demographics of the UK are changing. Only one fifth of councils in the LGA survey reported a shortage of places, and these are likely to be in central London. More immigration of young adults into London over the last 10 years had lead to a boom in pre-school children, which will rapidly increase inner-city demand for primary places. Visa versa, schools in Merseyside have up to 25% surplus places as the population ages and young families move out the area.

The upshot is that more provision needs to be made for schools to expand and grow in areas of demand (London and the South East), and merge and shrink in areas of lower demand. This may mean some disruption for teachers, but the alternative is unacceptably high class sizes in already crowded schools in the inner-cities.

Not much was said, apart from the usual line about how much has ALREADY been spent on education over the last 10 years. But my nasty suspicion is that schools funding in the UK over the next 5 years could be in for a big shock. Pencilled-in spending for 2010 is the same for 2009, but this could well change.

Let’s explain why.

Firstly, the government, even by their own estimation, will have borrowed an extra £175bn this year (or over four times what is spent on schools) to fund their shortfall in tax receipts and bank bailouts. Currently, their plans to create a new top rate of tax at 50% will raise only £1bn extra a year… a drop in the ocean. And it is HIGHLY likely without spending cuts now, this debt mountain will grow to over £250bn by 2011.

To really make a dent in paying back this money (let’s say over 10 years), the next government will have to cut some spending. The splurge in government spending over the last 10 years (of which schools were a big beneficiary) was bankrolled by tax on financial companies and their employees. That has gone for good.

Let’s assume the government tries to pay back £25bn a year, and can’t do so by raising taxes. That is a lot of efficiency gains; around 5% of government spending. We are told Building Schools for the Future is sacrosanct, so that leaves a £37bn schools budget to play with, which is mainly teacher salaries.

There is a little footnote that foretells what is in store:

Unit costs for post-16 learners will be subject to a 1 per cent efficiency assumption in 2010-11. (Page 119, Budget report)

And it doesn’t take much imagination to see what that means: either cut staff or freeze pay. There is still plenty of scope to trim some of the quangos that abound in education, but I’m afraid that mainstream schools might share some of the brunt as well.

We can’t all party like its 1999 any more.