In 1714, the British government offered 20,000 pounds to the person who could solve the vexing problem of how to measure longitude at sea.
That was perhaps the beginning of inducement prizes, or fat purses given as rewards for solving tough problems. (Clockmaker John Harrison finally won the prize in 1773.) Napoleon offered a prize for innovations in food preservation, while another prize spurred Charles Lindbergh to fly across the Atlantic.
Such high-publicity, high-reward contests are in vogue again, made popular by the 1996 Ansari X Prize for advances in commercial space flight. A McKinsey & Company study reveals that funding for prizes has exploded to perhaps $2 billion in the past decade.
Why so popular? Because they draw out unconventional thinkers, and breakthrough solutions can be cheaper and more effective than traditional R&D.
But how to design contests to gin up the best innovations? To work best, you need to make the challenge:
1. Big. The question should be interesting enough to pique interest.
2. Specific. The question should be answerable.
3. Rewarding. The question must be worth answering, with a prize worth winning.
Example: A $10 million X Prize on Challenge.gov asks for someone to design a production-ready, four-person car with 100-mile-per-gallon fuel efficiency.
— Adapted from “Can cash prizes for innovation get the economy rolling again?” Annie Lowrey, The Washington Post.