Prize philanthropy is a powerful strategy for producing innovation and public benefit. Well constructed prizes break bottlenecks, change perceptions, and accelerate adoption of beneficial innovations.

There are three primary benefits of well constructed prizes and media savvy global competitions; they are a high leverage and efficient investment, a powerful innovation strategy, and an effective change strategy.

Leverage and Efficient Investment

• Prizes are efficient. Sponsors pay the winners when and if the goal is accomplished. Prizes are performance based investment.
• Prizes are very high leverage. Competitors spend 10 - 40 times the amount of the prize purse to achieve the goal.
• Prize sponsors receive early benefits from launch, registration, and prize related activities and make the majority of their payments when and if there is a winner.

Powerful Innovation Strategy

• Prizes result in unexpected and unconventional approaches to problems without a clear path to solution
• Prizes result in multiple entries and often have the potential of multiple winner resulting in a new generation of solutions
• Prizes drive increased risk-taking by mavericks competing to win. Increased risk taking speeds innovation and results in breakthroughs.
• A prize attracts teams from around the world, across boundaries (e.g., more than 260 Google Lunar X PRIXE registration requests for GLXP from 35 countries).

Effective Change Strategy

• Prizes create hope and inspiration; the day a prize is launched the question changes from "Can it be done?" to "When will it happen?"
• Highly visible prize launches and global competitions attract worldwide attention increasing the understanding of the problem and preparing markets for rapid innovation adoption
• Prizes create heroes symbolic of what's possible
• Prizes can create or reshape an inefficient or blocked markets more rapidly than market mechanisms
• Prizes result in rapid and widespread investment against a defined goal compared to the traditional philanthropic theories (i.e., research, pilot, demonstration, legislation, investment-a process that can take decades)
• Prizes are low-bureaucracy and encourage non-traditional players to enter and bring non-traditional solutions
• Prizes force rapid policy change to accommodate competitions when an innovation is apparent (e.g., FAA regulations allowing suborbital trials)

When Are Prizes Useful?

Prizes are particularly effective when a market is stuck-blocked, inefficient, or underdeveloped. Mature and efficient capital markets produce and spread innovations. Where this is not occurring prizes can attract new money, minds, and methods to a seemingly intractable problem or an underappreciated opportunity.

Prizes are most useful when the path to solution path isn't clear. When the solution path is relatively clear, direct research and development expenditure is warranted. When it's not clear what technology will produce a desired capability, a prize creates incentive for a variety of approaches.

Prizes appear to be most effective when the timeframe to accomplish the goal is between three and eight years. If less, the goal is probably too easy and short of a radical breakthrough. If longer, it becomes difficult to mobilize and sustain awareness and resources.

While most prizes have historically focused on technology innovation, we believe that prizes can also be used to improve health, education, environmental outcomes where consumer behavior and public systems define results. This hypothesis is based on the awareness created by prizes, the emerging importance of social networking, the success of cause marketing, and the power of interest group lobbying-large groups of focused and energized people utilizing new technologies can make a big difference fast.

Prizes educate and excite the general public. In addition to producing breakthroughs and speaking adoption, prizes inspire student interest in science and engineering. Each prize provides educational outreach opportunities (e.g., student robotics competitions building lunar rovers). Prizes inspire and educate, they promote competition. Prize will prove to be fundamental to the innovation economy.

Examples

The best selling book Longitude told the compelling story of how prize launched by the British Parliament in 1714. The prize unexpectedly won by a clockmaker-a great example of a prize inducing a nontraditional solution.

The DARPA Grand Challenge program is another clear example of the power of prizes. By putting up a prize, Tony Tether estimates that he got a ten fold return on his investment and obtained designs and technology from players that he would have never expected to discover through a traditional RFP or vendor engagement process.

The Ansari X PRIZE resulted in competitor expenditures an order of magnitude larger than the $10 million prize. Since awarding the prize there has been $1.2 billion worth of private and public expenditure in developing the personal spaceflight industry.

In a Brookings paper Tom Kalil quoted former McKinsey partner Glen Mercer regarding the potential symbolic and emotional impact of a successful automotive prize competition:

"There is no stronger catalyst, no clearer depiction of the possible...than a competition leading to a winner...Americans want to see the best man, woman, book, film, team, or would-be pop star win. Winning a fair and open competition confers on the victors and their ideas a legitimacy that no amount of argument, endorsement, data, or regulation can achieve...American drivers will not be cajoled or lectured into buying more efficient vehicles-but they will drive a winner!'