Government's Prize-winning Strategy

Want a solution? Try offering a prize. To spur innovation, the federal government is turning to competitions and crowdsourcing. When Charles Lindbergh flew across the...
by | April 7, 2010 AT 3:00 AM

Want a solution? Try offering a prize. To spur innovation, the federal government is turning to competitions and crowdsourcing.

When Charles Lindbergh flew across the Atlantic in 1927, he wasn't just doing it for glory. He and his backers were in it for the money.

In 1919, hotelier Raymond Orteig offered a prize of $25,000 to the first team to fly a plane nonstop from New York to Paris. This prize encouraged a number of groups to compete, leading to research and development expenses far in excess of the $25,000 prize money. Charles Lindbergh famously won the competition by landing the Spirit of St. Louis in Paris on May 21, 1927. But did you know that just two weeks later, before Lindbergh had even collected his prize money, another team managed to fly not one but two people from New York to Germany? (Nobody remembers those guys, of course.)

Orteig's prize money spurred a competitive outburst of innovation that helped launch the era of trans-Atlantic flight.

President Obama believes that such incentives can work to help solve problems facing our nation. Which is why the federal government has announced it intends to start handing out more prizes than "The Price is Right."

In March, the Office of Management and Budget released a memo on "The Use of Challenges and Prizes to Promote Open Government." The message was unambiguous: "It is Administration policy to strongly encourage agencies to utilize prizes and challenges as tools for advancing open government, innovation and the agency's mission."

The federal government spends a lot of money on research -- more than $137 billion a year -- both through federal research facilities, such as the National Institutes of Health, and through government support of university research. Paying for research, however, can be a very inefficient way for government to get what it really wants, namely results.

Therefore, federal agencies are favoring "prize-sourcing." For example, the U.S. Department of Energy is sponsoring the L Prize, which offers prizes of up to $10 million dollars for anyone who can successfully develop a high-quality, solid-state light bulb that can replace the incandescent bulb. The Defense Advanced Research Projects Agency offers prizes of $2 million for driverless robotic vehicles that compete in that agency's Grand Challenge.

The Environmental Protection Agency is offering more modest prizes, up to $2,500, to encourage students and others to develop videos that "capture the faces of the environmental justice movement."

The OMB memo not only sends a strong signal to agencies, it also provides guidance and support for agencies looking to use prizes. In its memo, the OMB promised that it would launch a Web-based platform for prizes and challenges by early July. This platform will provide a forum for agencies to post problems and "invite communities of problem solvers to suggest, collaborate on and deliver solutions."

The use of so-called "crowdsourcing" by state and local governments has also been gaining momentum rapidly. Washington D.C.'s Apps for Democracy contest and Boston's use of an iPhone app to report issues such as potholes and graffiti are both part of this same phenomenon. Driven by technologies that make rapid knowledge sharing possible cheaply, harnessing the collective wisdom of the crowd is becoming easier and more common.

According to the OMB memo, prizes and challenges have a number of potential benefits:

  • They can capture the public imagination and change the public's perception of what is possible;
  • You pay only for results;
  • They can stimulate private-sector investment that is many times greater than the cash value of the prize.

The stimulative effect of competition and the lure of financial gain has long been cited as a powerful engine of innovation in the private sector. Indeed, a number of privately-funded organizations are also using prize money to solve big challenges. The X-Prize Foundation, for example, is offering $10 million in prize money to teams trying to develop a 100 miles-per-gallon car. The thinking is that such prize money will entice a number of different competitors to invest far greater amounts in trying to win not only the money, but the prestige of being the first.

That was certainly the case with the prize money offered for a trans-Atlantic crossing.

Orteig's prize money helped spur massive interest in aviation. Because it was an open competition, it opened up lines of investigation outside the established lines of thinking. Lindbergh's single-pilot, single-engine approach was scoffed at -- until it worked.