[Ip-health] The Economist on Innovation PRizes

Suerie Moon suerie_moon at yahoo.com
Sat Aug 7 13:37:58 PDT 2010

Innovation prizes
    And the winner is…
    Offering a cash prize to encourage innovation is all the rage. Sometimes it works rather well

      Aug 5th 2010              | San Francisco


A CURIOUS cabal gathered recently in a converted warehouse in San 
Francisco for a private conference. Among them were some of the world’s 
leading experts in fields ranging from astrophysics and nanotechnology 
to health and energy. Also attending were entrepreneurs and captains of 
industry, including Larry Page, the co-founder of Google, and Ratan 
Tata, the head of India’s Tata Group. They were brought together to 
dream up more challenges for the X Prize Foundation, a charitable group 
which rewards innovation with cash. On July 29th a new challenge was 
announced: a $1.4m prize for anyone who can come up with a faster way to
 clean oil spills from the ocean.

The foundation began with the Ansari X Prize: $10m to the first 
private-sector group able to fly a reusable spacecraft 100km (62 miles) 
into space twice within two weeks. It was won in 2004 by a team led by 
Burt Rutan, a pioneering aerospace engineer, and Paul Allen, a 
co-founder of Microsoft. Other prizes have followed, including the $10m 
Progressive Automotive X Prize, for green cars that are capable of 
achieving at least 100mpg, or its equivalent. Peter Diamandis, the 
entrepreneur who runs the foundation, says he has become convinced that 
“focused and talented teams in pursuit of a prize and acclaim can change
 the world.”

This might sound like hyperbole, but other charities, including the 
Gates Foundation, have been sufficiently impressed to start offering 
their own prizes. An industry is now growing up around them, with some 
firms using InnoCentive, an online middleman, to offer prizes to eager 
problem-solvers. Now governments are becoming keen too. As a result, 
there is a surge in incentive prizes (see chart).

Lost at sea
Such prizes are not new. The Longitude Prize was set up by the 
British government in 1714 as a reward for reliable ways for mariners to
 determine longitude. And in 1795 Napoleon offered a prize to preserve 
food for his army, which led to the canned food of today. In more recent
 times incentive prizes have fallen out of favour. Instead, prizes tend 
to be awarded for past accomplishments—often a long time after the 
event. As T.S. Eliot remarked after receiving his Nobel prize, it was 
like getting “a ticket to one’s own funeral”.
 Incentive prizes do spur innovation. A study led by Liam Brunt of 
the Norwegian School of Economics scrutinised agricultural inventions in
 19th-century Britain and found a link between prizes and subsequent 
patents. The Royal Agricultural Society awarded nearly 2,000 prizes from
 1839 to 1939, some worth £1m ($1.6m) in today’s money. The study found 
that not only were prize-winners more likely to receive and renew 
patents, but that even losing contestants sought patents for more than 
13,000 inventions. 

Today’s prizes appear to have a similar effect. The Ansari X Prize, 
for example, has attracted over $100m in investment into the (previously
 non-existent) private-sector space industry. The technology used by the
 winning spaceship is now employed by Virgin Galactic to develop a 
commercial space-travel service, and many of the losing contestants have
 formed companies in the burgeoning sector.

The important thing about a well-designed prize, argues Dr Diamandis,
 is its power to “change what people believe to be possible”. Indeed, 
they open up innovation. A study co-authored by Karim Lakhani of Harvard
 Business School reviewed scores of problems solved on InnoCentive and 
found that people from outside the scientific or industry discipline in 
question were more likely to solve a challenge.

Prizes also help form new alliances. Netflix, an American company 
that rents films, offered a $1m prize to anyone that could do a better 
job than its own experts in improving the algorithms it uses in online 
recommendations. It was stunned to receive entries from over 55,000 
people in 186 countries. The seven members of the winning team, who 
collaborated online, met physically for the first time when they picked 
up the prize in 2009.

Inspired by such successes, governments are now offering prizes. 
Britain, Canada, Italy, Russia and Norway, in co-operation with the 
Gates Foundation, are funding the Advanced Market Commitment (AMC) to 
develop vaccines for neglected diseases in the developing world. The AMC
 is offering $1.5 billion to drugs firms that can deliver low-priced 
vaccines for pneumococcal disease, a big killer of children. 
GlaxoSmithKline plans to deliver such vaccines to Africa next year. 

Alpheus Bingham, a co-founder of InnoCentive, says government 
agencies, ranging from America’s space agency, NASA, to the city of 
Chicago, now use his company’s platform to offer prizes. There is even a
 bill in the American Congress that would grant every federal agency the
 authority to issue prizes. 

Is this a good thing? Prizes used to promote a policy are vulnerable 
to political jiggery pokery, argues Lee Davis of the Copenhagen Business
 School. Thomas Kalil, a science adviser to Barack Obama, acknowledges 
the pitfalls but insists that incentive prizes offered by governments 
can work if well crafted. Indeed, he argues that the very process of 
thinking critically about a prize’s objectives sharpens up the 
bureaucracy’s approach to big problems.

One success was NASA’s Lunar Lander prize, which was more 
cost-effective than the traditional procurement process, says Robert 
Braun, NASA’s chief technologist. Another example is the agency’s recent
 prize for the design of a new astronaut’s glove: the winner was not an 
aerospace firm but an unemployed engineer who has gone on to form a new 

When the objective is a technological breakthrough, clearly-defined 
prizes should work well. But there may be limits. Tachi Yamada of the 
Gates Foundation is a big believer in giving incentive prizes, but gives
 warning that it can take 15 years or more to bring a new drug to 
market, and that even AMC’s carrot of $1.5 billion for new vaccines may 
not be a big enough incentive. No prize could match the $20 billion or 
so a new blockbuster drug can earn in its lifetime. So, in some cases, 
says Dr Yamada, “market success is the real prize.”

      Science and Technology    

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