The basics of designing prize and challenge competitions. Please note, this is a content filled draft of research, not a finalized product.

1. Prizes and Challenges Architecture:
Maximizing Community Engagement
Jess Jacobs, Innovation Fellow
Sameer Ponshke, Intern
DRAFT
July 2010

2. Definitions
• Prize: A monetary or non-monetary reward used to incentivize
innovative solutions for existing problems.
• Challenge: a problem or gap in performance which can be solved
via the novel application of existing or the creation of new solutions.
• Crowdsourcing: harnessing the power of a community through
technology to collect, evolve, and rank ideas and contributions to
reveal the strongest solutions

3. Why should Gov’t facilitate P&C?
• Encourages stakeholder buy-in:
– Stakeholders (partly) define the problem
– No RFP = speculative goals
• Lets the the little guy compete:
– Fewer reporting/application requirements allow small
organizations/people to compete
• Low Risk, High Reward:
– Challengers bear upfront costs and liability
– Only Pay for results
• Economic Stimulation: incentivizes private sector to invest
– Allows for improving or repurposing existing commercial or
open source platforms

4. When to Use Prizes and Challenges
Source: “Using Prizes to Spur Innovation,” McKinsey Quarterly, 2009

5. Challenge Community
• The most important determinant of the success
or failure of open innovation is the community of
solvers.
• Ideal community features:
– Large mobilized pool of willing submitters
– Multidisciplinary range of skills and interests
– healthy expectation of winning
– has a vested interest in the solution, not just the prize

6. Prize Design
• Likewise the type of prize offered is largely dependent
upon the target community’s motivations:
– For example: complex, well defined, problems targeted at
academics usually are best served with large monetary prizes
and overall recognition of one individual as opposed to
continued recognition due to the large investment these groups
make in attempting to solve the challenge
• The type of prize offered is largely dependent upon the
solution sought:
– Solutions requiring continual innovation processes, such as the
creation of open source technologies, correspond to small prizes
which support leveraging incremental efforts of many individuals

7. Prize Types
• Intrinsic: Internal satisfaction. Fostered by emphasizing the social
or technological advances gained by solving.
• Monetary:
– Large Prizes: “Grand Prizes”
– Small Prizes: Prizes in the $5000 range encourages competitors
to collaborate, as the larger payout will come from industry
investment in problem solutions to, not the act of solving the
problem
• Recognition (Non-Monetary): Recognition by peers and
administrative bodies can be conveyed by publicly acknowledging
solutions or progress toward solutions.

8. Prize Types (Summary)
Award Type Underlying Motivation to
achieve solution
•Altruism
•Care for Community, Attachment to the Group
•Enjoyment & Recreation
•Ideology
Intrinsic •Interest in Objective & Knowledge
•Need, Software Technical Reasons
•Sense of Efficacy
•Firm & Peer Recognition
Recognition •Friendships, Relationships, Social Support
•Reciprocity
Non-Monetary •Reputation
•Small (<5000k): Collaboration
Monetary •Big Prizes: $$$$

9. Prize Types: Intrinsic
• Utilize intrinsic motivators through
wording/context
– Specifically effective in motivating solutions related to social justice: agriculture,
vaccines for diseases of the poor, energy and climate change, learning
technologies
• But be careful! Word orchestration may foil
innovative solutions.

10. Prize Types: Monetary
• A combination of monetary and non-monetary awards is
usually appropriate in online communities
• Monetary:
– Satisfier/Disatisficer - if it is not enough people lose interest
– 62% of awarders believe that monetary rewards are effective in stimulating
involvement
– Prizes tied directly to successful ideas are more effective than raffling an
award to community participants
• Non-Monetary:
– Recognition is only a satisfier – everyone likes to be loved
– 57% of awarders believe that non-monetary incentives are effective.
– Rank based on the quality not quantity
– Recognition of ideas is key to spurring further community involvement

11. Examples
Challenge Prize
Challenge Motivation Example
Type Types
Focus attention on, set standards in, influence Intrinsic Nobel Prizes – rewards excellence
perceptions of a particular field or issue Recognition and influence thinking in specific
Exemplar
areas
Monetary
Highlight a range of best practices, ideas, or Intrinsic PICNIC Green Challenge-
opportunities within a field Recognition promotes ideas that do and do not
Exposition
win
Monetary
Celebrate and strengthen a particular community Recognition El Pomar Foundation - recognize
Intrinsic and build networks of top-
Network
performing nonprofits
Educate and change the behavior of participants Intrinsic FIRST Robotitcs’ technology-
thought the prize process Recognition offers mentorship programs to
Participation
build the skills of young students
Make money! Monetary Ansari X PRIZE – stimulated the
Recognition private-spaceflight business
Emulate market incentives by driving costs down through a $10 Million dollar prize
Market Stimulation /
through competition and exposing latent demand.
Inducement Prizes
When utilized by the government there may be a
commitment to purchase a given quantity of items
which meet specific performance measures.
Solve a challenging, well-defined problem that Monetary Threadless.com – offering a
requires innovation weekly competition for the best
Point Solution
shirt design
Adopted From: “Using Prizes to Spur Innovation,” McKinsey Quarterly, 2009

12. In Conclusion
• Appropriate prizes are a factor of the target community’s
population and the type of solution sought.
• Attract scalable technologies
• Engage solvers with a vested interest in the solution
• Minimize risk (challenger and solver)
– Duplication of research efforts
– Information Asymmetry
• Maximize rewards and sustainable solutions
– Intrinsic, Monetary, Recognition/Non-Monetary
– Encourage collaboration and competition

13. “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!”
- Glen Mercer
Brookings Institute Report

14. Examples of P/C Programs

15. Netflix Challenge - 2006
• Reduce Cinematch recognition errors by 10% and receive a million
dollar prize
• Within a year the rate had been reduced by 8%- this incremental
reduction was rewarded with a $50k “progress reward”
• Mobilized 2,500 teams with 27,000 members from 161 countries
• Key Takeaway:
– Progress rewards can encourage continued research
– Prizes and Challenges often generate research worth far more than the
prize amount

16. Ansari X Prize - 1996
• The success of this challenge is largely responsible for the
“renaissance” of P&C platforms in recent years
• Objective: $10 million was offered to the team that could,
without government support, successfully send a pilot and two
passengers to a suborbital altitude of at least 100 kilometers
and then repeat the flight within two weeks
• The Ansari X Prize was so heavily contested that it stimulated
at least $100 million in private sector investment
• Key Takeaway: Wealthy individuals are willing to invest in
teams and projects simply to be associated with the
“potentially historic nature of the prize”

17. Veterans Affairs Innovations Initiative - 2009
• Did internal pilots before opening the contest to the public
– Claims Processing: received 3,000 ideas and yielded 10 winners
from employees and co-located veterans service organizations
– Health Records Improvement: One Month competition with
44,000 users, 6,500 ideas, 9,700 comments, and 552,000 votes
and 26 winners.
• Internal Key Takeaway: Internal competition across departments is
an appropriate and effective way to spur innovation within an
agency

18. Royal Agriculture Society of England (RASE) -1838
• Held shows every year to display the annual winner of the
challenge, The shows were instrumental in engaging public
interest; after the first award was won, competition entries
increased exponentially
• Key Takeaways: By holding public displays of innovation in
various locations around the country, RASE was able to establish:
– Enthused public innovation
– Spillovers of technological knowledge between individuals and
large manufacturers
– Diffusion of best practice techniques between and amongst
rural and urban areas

19. The Bad -- CONS to the “good” slide
• Careful Prize and Challenge Architecture can help
mitigate the following disadvantages:
– Duplication of research efforts
– Information Asymmetry
• leads to inappropriate prize type selection
– Uncertainty if challenge has a scalable solution
• Delays the pace of innovation
– No Upfront Funding:
• Creates a high barrier to entry and an uneven playing field
• Does not necessarily contribute to growth in employment
• Innovation time is limited as government payments are
constrained to Federal Fiscal Years