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Inducing Innovation Through Prizes

Inducing Innovation Through Prizes

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Published by Jaison G. Morgan
This article was published in the journal, innovations (MIT Press). It covers typology and some landscaping trends in the world of prize-induced innovation.
This article was published in the journal, innovations (MIT Press). It covers typology and some landscaping trends in the world of prize-induced innovation.

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Published by: Jaison G. Morgan on Jul 13, 2010
Copyright:Attribution Non-commercial


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Today,as corporate and philanthropic interests experiment increasingly with dif-ferent types ofcompetitions to induce breakthroughs,we are experiencing a resur-gence ofinnovation through prizes.From competitions for writing business plansto cash purses that have inspired private commercial space exploration,the powerofprizes is gaining increased attention.This essay seeks to establish a commonunderstanding ofprizes,including their constraints and their potential for lever-aging real outcomes.THE MODEL OF PRIZE-INDUCED INNOVATIONWhen Charles Lindbergh crossed the Atlantic in 1927 to become the first pilot tofly from New York to Paris,his fame led to important developments in the buddingaviation industry.Within a year,applications for pilot licenses in the U.S.increasedby 300 percent;the number oflicensed aircraft in the U.S.increased by 400 per-cent;and the number ofU.S.airline passengers increased from 5,782 in 1926 to173,405 in 1929 (a roughly 30-fold expansion).
While many recognize the value of Lindbergh’s accomplishment as having inspired a new generation ofindustry,there has been relatively little focus on one ofthe motivating factors that drove himand others to attempt such an important breakthrough.Lindbergh was one ofnine competitors attempting to win a prize.HotelierRaymond Orteig had offered $25,000 to the first pilot to traverse successfully theAtlantic.
Business interests formed to compete for the prize,stimulating a com-bined investment ofover $400,000 from teams attempting to win the purse.Clearly the most famous ofthese attempts was Lindbergh’s successful crossing in© 2009 Jaison G.Morgan
/ fall 2008
 Jaison G.Morgan
Inducing InnovationThrough Prizes
 Jaison G.Morgan is the lead manager ofthe Prize Development Department for the X PRIZE Foundation.The Department houses the intellectual property and know-how that has enabled the successful design ofover $60 million ofinducement prizes.Over the next five years,the Foundation plans to launch between 10-15 additional  prizes,representing a combined purse value ofover $300 million.Morgan holdsdegrees from Hampden-Sydney College (BA) and the University ofChicago (MA) andis a frequent blogger and lecturer on the continuing evolution ofprizes to induce inno-vative breakthroughs.
/ fall 2008the
Spirit ofSt.Louis
.While there were many signs ofincreasing opportunities incivil aviation at the time,the leverage that Raymond Orteig generated with his cashprize was a pivotal force.Offering prizes as a financial incentive to inspire innovative breakthroughs is atime-honored model (see Text Box,p.111).
The most recent corollary for theOrteig Prize came from the X PRIZE Foundation,with the awarding ofthe AnsariX PRIZE in 2004.Once again,the model engaged commercial interests,changedpublic perceptions,and opened new markets.In 1996,the X PRIZE Foundation launched the first private race to space.Frustrated with the pace ofinnovation from government programs,Dr.PeterDiamandis developed a competition that offered a prize to the first privately financed team that reached an altitude of100 kilometers carrying a payload equiv-alent ofthree passengers and capable ofreplicating the feat twice within twoweeks.He cultivated a partnership with the Ansari family,which made possible thecash purse of$10 million.Over the course ofeight years,the Ansari X PRIZE led to important develop-ments in private space travel.Twenty-six teams from seven nations registered tocompete,
and the combined value oftheir efforts exceeded $100 million.
Thecare-free reentry and cantilevered hybrid rocket motor technology developed by the winning team have both since evolved into commercial applications,and pre-flight sales ofsuborbital space tickets are showing promising interest.The winningspacecraft,
,now hangs in the Smithsonian National Air and SpaceMuseum next to the
Spirit ofSt.Louis
.Whether or not private space travel willachieve the commercial success found in other civil aviation sectors has yet to bedetermined,but we can attribute many critical developments in the early forma-tion ofthis new industry to the Ansari X PRIZE.Another important outcome ofthe Ansari X PRIZE was a renewed interest inprizes.Today,the number ofnew prizes is peaking at levels not seen for more thanfifty years.Furthermore,the level ofexperimentation and innovation in prizedesign is being supported by an increasing variety ofcorporate and philanthropicsponsors.Prize sponsors are attracted by many ofthe strengths ofthe Orteig Prizeand the Ansari X PRIZE,such as broad public exposure,financial leverage,and theguarantee ofpayment only upon providing proven results.So,as prize designerscontinue to experiment with novel prize constructs,we are seeing many ofthemattempting to replicate these strengths while also trying to mitigate the costs andrisks associated with such ambitious and innovative endeavors.
 A Common Prize Taxonomy 
While significantly greater attention has been paid to prizes oflate,relatively littleattention has been paid to their wide variety.We know that the historic range of prizes and their potential for delivering outcomes is broad;therefore,it is impor-tant to establish a common framework for understanding the categorical distinc-
 Jaison G.Morgan
Inducing Innovation through Prizes
tions among prizes and to what degree these variations can generate innovativebreakthroughs.The Orteig Prize and the Ansari X PRIZE share a number ofdesign strengths.In each case,the prize purse was only paid after the accomplishment had beenachieved.This type of 
ex ante
incentive can offer a high degree ofleverage.Whenthe purse size is significant enough to attract broad participation,multiple teamsinvest to develop solutions and the total value ofsuch ventures often exceeds thecash award ofthe purse.Both prizes offered events and stories that were readilpicked up by the press,adding a fame factor to the value ofthe purse and drawinggreater and more diverse participation.Newcomers from fields outside ofestab-lished interests provided important disruptive activity as they experimented withdifferent materials or unorthodox methods,thereby laying fertile ground for inno-vation.The result ofboth prizes was a broad range ofinvestment from a wide fieldofplayers,in an environment in which success was rewarded.However,while prizes
ex ante
are gaining popularity,they are still outnum-bered by their counterpart,prizes
ex post 
Ex post 
prizes,which are bestowed foraccomplishments after the fact,represent the most recognizable prize category;they include the Nobel and Pulitzer prizes,Academy Awards,and many others.And while they provide great value in defining high standards ofsuccess,they are
/ fall 2008107
 A BriefSampling ofOther Historic Inducement Prizes and TheirOutcomes
The British Longitude Prize (1714):
accurate measure oflongitude aboard naval vessel
 Académie de Besançon Prize for Substitute Foods (1771):
use ofpotato as food source
 Alkali Prize (1775):
synthetic production ofalkali for manufacturing glass,paper,soap
 Napoleon Food Preservation Prize (1795):
canning and preservation offood
Turbine Prize (1826):
use oflarge-scale commercial hydraulic turbines
Liverpool & Manchester Railway Locomotive Prize (1829):
passenger rail service
Confederate Prize for Inventions to Sink Warships (1861):
first combat submarine
The Billiard Ball Prize (1863):
invention ofcelluloid ball and modern plastics industry 
 Napoleon III Margarine Prize (1869):
process for manufacturing butter substitute
RSA Laboratories Secret-Key Challenge (1997):
cracking ofencryption codes
Goldcorp Challenge (2000):
predictive methodologies for the mining ofgold
 Microsoft Virus Bounty (2003):
successful prosecution ofcomputer virus creator
Cane Toad Trap Competition (2004):
better trap for highly poisonous toad
Windows-on-a-Mac Prize (2006):
Windows XP on a Mac with an Intel processor
 Astronaut Glove Challenge (2007):
highly dexterous astronaut gloves
Excerpted from Knowledge Ecology International,Research Note 2008:1; see www.keion-line.org.

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