Can X Prizes Spur Innovation?

Contests such as Peter Diamandis' X Prizes offer big purses for breakthrough ideas. But can prize money do more to stimulate innovation than existing incentives?

By Steve LeVine

By the autumn of 2001 it looked as if Peter Diamandis' luck had run out. Five years earlier, the wonkish Bronx-born doctor with dreams of being an astronaut had made headlines by promising to pay $10 million to the first privately financed crew to fly into space. He saw the jackpot as a way to spur a private space industry, as well as a means to generate some business for himself and perhaps even a ride to the moon. True, Diamandis had nowhere near $10 million, but he already had set up a nonprofit organization, X Prize Foundation, to run the contest and thought he could raise the money easily from corporate patrons. He was wrong. No one was willing to give away that much cash, particularly after the September 11 terrorist attacks. The contest appeared on the brink of collapse.

Today the 47-year-old Diamandis is often hailed as a visionary. After securing funding, his handsome offer ended up prompting a hoped-for space race, with Diamandis awarding the $10 million in 2004 to a team bankrolled by Microsoft (MSFT) 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.

GENIUS AT RAZZMATAZZ

His X Prize, moreover, 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.

But as contests have proliferated, so, too, have questions about their ability to push forward the boundaries of technology. 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?

Diamandis, not surprisingly, 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." But 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.

Diamandis is an unassuming yet intense plug of a man with a broad smile. Dressed in a black blazer with pointed lapels and black shirt open at the neck, shirttails out, he displays the Space Age paraphernalia that 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. It helps that the founder's own story resembles a parable of the triumph of persistence.