But the idea goes way back. As X Prize founder Peter Diamandis and journalist Steven Kotler explain in their book "Abundance," competitions for innovation were regularly used by governments and royalty as far back as the 18th century to overcome specific challenges. The British government, for example, offered £20,000 (several million dollars in today's money) as a prize in exchange for a solution that would calculate a ship’s longitude. The result was the marine chronometer, a device that revolutionized seafaring.
There's a fairly logical premise behind why cash prizes are so effective. Rather than paying a single team of engineers, consultants or subject matter experts, a cash prize allows a challenge to reach a much broader audience, thus increasing the number of people who are working on your problem. Of course, it helps when whoever sets up the prize only pays out when a satisfactory solution is reached.
But there's more to the lure of crowdsourced, incentive-based innovation than simply the number of people you can engage, or the ability to only pay for results. There's also a more interesting, more counterintuitive reason why prizes may help spur solutions: You're consulting with people who know less about the subject matter.
Here's how Don Peppers, writing over at LinkedIn about the popular, incentive-based crowdsourcing platform InnoCentive, explains this phenomenon. Because InnoCentive allows businesses and nonprofits to post cash prizes for solutions to challenges, and then brokers the exchange of intellectual property and prize between solver and challenger, it enables the challengers to tap an entirely different set of expertise — a fresh pair of eyes, so to speak:
An academic study of successful solutions produced by InnoCentive has found that a solver’s likelihood of solving a problem (that is, generating a successful new innovation) increases with the distance between the solver’s field of technical expertise and the problem’s domain. In other words, as Daren C. Brabham says in his new book "Crowdsourcing," “a biologist may fare better than a chemist would at solving a chemical engineering problem.” And women, who are often part of the “outer circle of the scientific establishment,” have also been found to do better at problem solving than men do on this networking site.
This does beg the question, of course, as to how cheaply should innovators be giving their ideas away. Is such crowdsourcing a way for corporations to freeload off of the creativity and resourcefulness of the general population? In the end though, solvers choose to enter these contests of their own accord — and the ability of such challenges to solve real world problems suggests there is certainly a demonstrated value from the challenger's end. According to an analysis by Karim Lakhani and Lars Bo Jeppesen of Harvard Business School, of 166 challenges posted between 2001 and 2005, 49 were solved — a rate that Lakhani argues is impressive given that given that well-funded R&D; companies had previously failed to offer solutions.
From crowdsourced broadcast entertainment via YouTube to open source software development, it seems a fair bet that business models based on collaborative, distributed networks of talent and expertise are here to stay. And the application of such networks to problem solving and innovation is likely to bring world-changing solutions to some of the world's biggest challenges. I just hope the world's solvers are rewarded accordingly.
Here's more on how InnoCentive works:
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