Contests and Innovation

Stephen DeAngelis

December 05, 2008

I have written several blogs about prizes being offered for innovations (for example, see my posts entitled A New Approach to Innovation and More Prizes for Innovation). In the December 1, 2008, print edition of BusinessWeek, Steve LeVine penned an article entitled, “The X Factor: Can Big-Money Contests Save Innovation?” The man behind the X Factor concept, Peter Diamandis, dreamed of grabbing a ride into space and the contest he envisioned was his way of spurring a private space race that might help him get there. The contest became a reality and it offered a $10 million dollar prize that actually stimulated the kind of activity envisioned by Diamandis. It was awarded in 2004 to a group that was financed by Microsoft co-founder Paul Allen.

“Since then, X Prize Foundation has started three more challenges—for super-efficient cars, human genome sequencing, and lunar space flight. Diamandis and his staff now are evaluating ideas from would-be sponsors for competitions on such causes as improving health care and promoting clean energy. If the ideas are promising, the foundation would then draft rules and solicit entrants.”

There are lots of dreamers in the world. The difference between a dreamer and an entrepreneur is that the latter works hard to make his or her dreams come true. Entrepreneurs are both optimists and risk takers. If imitation is the sincerest form of flattery, Diamandis should be highly flattered.

“His X Prize … has become a template for organizations, companies, and even the federal government. The format: Announce an attention-grabbing goal, find a benefactor who’ll put up the prize money or pay for it yourself, wait as the brightest minds race each other to come up with the answer, and then bask when you declare a winner. Today there are dozens of copycat contests in the U.S. and Europe for everything from curing Lou Gehrig’s disease to solving age-old math conundrums. Awards run from $75,000 to $50 million.”

One would think that the proliferation of contests would be sufficient proof that they help foster innovation and scientific progress. LeVine writes, however, that questions have arisen.

“Are they better at yielding breakthroughs than traditional research and development? Can Lotto-size payouts solve monstrously complex problems? Or are they a fad that stokes vanity-driven entrepreneurs focused on smaller-scale challenges?”

As one would expect, Diamandis believes that contests are extremely valuable in pushing the frontiers of science and technology.

He “predicts that cash competitions will resolve some of ‘the world’s grand challenges.’ When he proposed a prize for space travel, he recalls, ‘a lot of people also told me it was a stupid idea and that no one could win it.'”

Like any good entrepreneur, Diamandis is also a realist.

“He concedes there are problems that you can’t simply ‘throw a prize at.’ And at least some scientists see contests as ultimately immaterial in their fields. Richard Gibbs, director of the Human Genome Sequencing Center at Baylor College of Medicine in Houston, notes that researchers have made huge advances in understanding DNA without the lure of a sweepstakes. ‘The X Prize is cute,’ he says, ‘but is not really the driver.’ Still, he and others say what’s the harm if contests generate excitement about science.”

On the surface it appears that contests are good when searching for answers to specific challenges. Because solutions to specific challenges are marketable, the money backing the search for those solutions makes economic sense. Even contests looking for solutions to humanitarian challenges in the developing world make economic sense. More and more companies are realizing that the future’s greatest opportunities lie in the developing world. And the developing world’s best hope is that the developed world starts paying attention to that fact. Contests don’t seem as useful for fostering basic science because basic scientific research initially has no unique marketplace. It’s the difference between science and applied science — both are required. Contests are better for applied science. In addition to being optimistic and a risk taker, Diamandis possesses two other characteristics of an innovator/entrepreneur — playfulness and salesmanship.

“Space Age paraphernalia … fills his office within the foundation’s spacious new headquarters in Playa Vista, Calif.: a portrait of actor William Shatner from his Star Trek days, models of various space vehicles, and a sword commemorating Diamandis’ own victory in a big contest, the $500,000 Heinlein Prize in 2006 for contributions to the commercialization of space. A large component of the X Prize is Diamandis’ genius at razzmatazz.”

Diamandis is a bright guy, having earned a master’s degree in aerospace engineering from the Massachusetts Institute of Technology and a Harvard Medical School degree. His degrees reflect his broad interests in how things work. He also freely admits that the idea for the X Prize was not original. “He modeled his contest,” LeVine writes, “after the one that spurred Charles Lindbergh to fly solo across the Atlantic in 1927.” Even that idea, wasn’t original.

“Prizes to determine how to measure longitude were around for 200 years before British clockmaker John Harrison solved the mystery in 1761. More recently, contests helped begin the canning industry, accelerate progress in the automotive industry, and produce the first computer to beat a chess grandmaster (Garry Kasparov in 1996). In the 20th century, government grants and corporate R&D budgets became the favored way to fund scientific advances, with contests almost dying out until Diamandis came along.”

Diamandis’ risk taking spirit is evidenced by the fact that he offered the prize before he had the money.

He “figured he’d find it before anyone could put a privately financed craft into space. At the contest’s low point in 2001, he bought an insurance policy that would pay the $10 million purse. But he was so strapped, he couldn’t afford the $50,000 premium. Then a wealthy Texan named Anousheh Ansari came seemingly out of nowhere with millions of dollars from investments in telecom. She paid the premium and funded what Diamandis renamed the Ansari X Prize. Today, Diamandis hobnobs with the likes of physicist/author Stephen Hawking and Google co-founders Sergey Brin and Larry Page, all backers of the current X Prize contests.”

I suspect that most successful entrepreneurs have written checks with their sales pitches that they knew they couldn’t cash with their current assets. Diamandis no longer has to take such risks.

“These days, patrons are knocking on Diamandis’ door. ‘I don’t make the claim that incentive prizes are a panacea,’ he says. But he adds that there are hundreds of billionaires on the planet. ‘There will come a time when you can only name so many buildings,’ he says. ‘I won’t be surprised if over the next decade we see $100 million or $1 billion megaprizes to solve big problems. We are genetically bred to compete.'”

LeVine points out that conceiving and running a contest — especially a really high-priced one — is not as easy as it sounds.

“The goal has to be tantalizing, but the odds can’t be so long that the task is impossible. So far, space challenges appear to work best. For starters, there are millions of sci-fi fans around the world. Another promising field is autos, which also has plenty of enthusiasts. In 2010, Diamandis could stir up a frenzy when he promotes his high-mileage car contest with a road rally through a half-dozen U.S. cities. Diamandis’ reputation may turn on whether prize money can bring about affordable, reliable alternatives to fossil fuels. Last April his foundation said it would host a $10 million competition for biofuels, with later awards for the creation of a clean aviation fuel, improved energy storage, and a system to provide water, electricity, and broadband service to villages in the developing world. But the group has pushed back deadlines as Diamandis’ deputies studied ‘hundreds of ideas,’ says Jaison Morgan, who heads the prize development office. ‘There are breakthroughs, but not one bold enough for us now. We want a prize that will revolutionize things, to capture the public’s imagination.’ That may be too tall a challenge. The bigger the problem, the more likely that a lot of money and effort have already been spent trying to solve it, undermining the impact of even a well-endowed contest. And alternative energy is one of those pursuits that governments and private industry invest billions of dollars on every year.”

Diamandis, writes LeVine, is not as interested in promoting scientific breakthroughs as he is in solving challenges to daily living. He wants to make life better for millions of people around the globe. Getting into space or landing a robot on the moon doesn’t exactly accomplish that goal.

“Ultimately, he wants to parlay the interest of benefactors in self-promotion into a social good—’to solve big problems and affect how people do their thinking.’ That’s a laudable goal. But as Diamandis himself concedes, not every problem can be fixed with a contest.”

In the long run, Diamandis may be thinking too big. Many of the challenges faced by the world’s poor could be addressed by useful but affordable technologies. Contests that spur solutions to those challenges wouldn’t attract big money or big donors — and that’s the rub. Still, contests have their place and people love to see the competition of ideas.