X Prize Founder Peter Diamandis Targets Breakthroughs With More Incentive Prizes

5/22/09Follow @bvbigelow

It has been almost five years since a team of aerospace entrepreneurs funded by a software billionaire claimed the Ansari X Prize, the $10 million prize competition to develop the first reusable private spacecraft.

Since then, the frustrated space enthusiast who established the X Prize as a way to re-ignite astronautical innovation, Peter Diamandis, has won some prizes of his own. He was the inaugural winner of the 2006 Heinlein Prize for his efforts to deliver humanity to space; a Lindbergh Award in recognition of his pioneering work in creating incentive prizes; and an Arthur C. Clarke Award for innovation.

As the chairman and CEO of the X Prize Foundation, based near Los Angeles in Playa Vista, CA, the 48-year-old Diamandis says his goal now is to make the X Prize “the gold standard of incentive prizes that are well-promoted, well-executed, and hit the mark” in terms of targeting technology breakthroughs in such fields as energy, astronautics, transportation, medicine, genomics, and exploration.

In anticipation of his talk at San Diego’s MIT Enterprise Forum, I recently asked Diamandis how the X Prize Foundation has changed since it wrote a $10 million check in 2004 to spacecraft designer Burt Rutan and his investor, Microsoft co-founder Paul Allen.

peter_diamandis_42709For one thing, Diamandis says, the foundation has grown almost tenfold—from five people to a staff of 45. The foundation also is working more rigorously now on what he calls “prize methodology,” developing the principles, procedures, and rules for prizes that will drive key breakthroughs in such fields as life sciences, exploration, energy, global development, education, and the environment. Among other things, he says the group has been working with scientists at UCSD’s Scripps Institution of Oceanography to develop prize methodologies for a possible “Ocean X Prize” in three possible areas:

—Ocean exploration. Since the U.S. deep submergence vehicle Alvin was launched 45 years ago and Russia’s MIR submersibles are over 20 years old, Diamandis says the foundation is considering a prize to create new technologies needed to explore the “Challenger Deep” of the Mariana Trench, 7 miles beneath the surface of the Pacific Ocean.

—Ocean floor mapping. Diamandis says we know more about the surface of Mars than about the bottom of the ocean. So a prize for mapping the ocean floor could encourage the development of new underwater mapping technologies.

—Ocean conservation. The Great Pacific Garbage Patch is a region of the Pacific Ocean where plastic trash accumulates into vast masses of unsinkable drifting litter. The X Prize Foundation is considering a prize that would spur the development of innovative ways to “heal” such garbage patches.

To Diamandis, it is only a matter of time before incentive prizes become as important to innovation as venture capital. Diamandis says he’s heard Rick Burnes say that venture capital also seemed like a “very strange idea” in 1970, when Burnes co-founded Charles River Ventures in Waltham, MA. “Now venture capital is everywhere,” Diamandis says. “I think the same thing will happen with incentive prizes.”

With the success of the Ansari X Prize, similar 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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