X Prize Founder Peter Diamandis Targets Breakthroughs With More Incentive Prizes

5/22/09Follow @bvbigelow

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organizations and prizes have been proliferating. A recent study by McKinsey & Co. that analyzed trends in prize philanthropy found that private foundations and corporations have created over 60 major prizes with cash awards totaling $250 million since 2000. Wade has written about two organizations on the East Coast, TopCoder and Innocentive, that are based on incentive prize models. But the concept doesn’t always work. Efforts by Las Vegas, NV-based Bigelow Aerospace to stimulate private U.S. manned space flight with a $50 million prize were recently terminated. Diamandis says the rules proposed by founder Robert Bigelow (who is no relation to me) didn’t make sense. This is part of the reason why the X Prize is so focused on prize methodology.

Diamandis says it’s also important to distinguish between the incentive prizes like the X Prize that drive innovation by establishing a clear set of rules to encourage a specific “audacious yet achievable” technological breakthrough, and an award like the Nobel Prize that is typically bestowed decades after a landmark scientific discovery and has no intentional effect on innovation whatsoever.

“Incentive prizes are about driving objective goals,” Diamandis says. “There really is a sweet spot in terms of creating a challenge that is valuable to society and attracting key players.”

At a time when the economic tide is lowering all boats, Diamandis contends that prize competitions represent a lower-cost way to encourage innovation. The sponsor’s upfront capital commitment is minimal, and competing teams usually come with their own benefactors. I’ve questioned whether this model works all that well, since there is only one winner. In the case of the Ansari X Prize, the funding that Allen provided for Rutan’s SpaceShipOne was at least twice as much as the $10 million prize itself. But Diamandis counters that the real value is spurring innovation across a broad front, and that even losing teams develop new technologies that can be realized. With an incentive prize, Diamandis argues there also are additional opportunities for funding innovation.

“What occurs is that you offer teams two additional forms of capital that didn’t exist before,” Diamandis says. “One is corporate sponsorships, which is a $30 billion-a-year market, and the other is philanthropic, or what I call ‘ego dollars,’ ” (think Paul Allen). “So a project that might have only been finance-able by venture capital now has two additional pots of capital structured around it.” Diamandis says his goal is to get philanthropic organizations to hand out 10 percent of their donations in the form of incentive prizes. And with global philanthropy accounting for what he says is $300 billion worth of economic activity, that could drive a lot of innovation.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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