Whether it is government budgets or corporate profits, when money gets tight in a downturn, investment in research and development suffers. The effects may not be immediate, but the impact on turning ideas into innovations and innovations into products can be profound and long-lasting.

In the search for more cost-efficient—and quicker—ways to innovate, government and industry are turning to the age-old mechanism of offering prizes to spur innovation and solve problems, with the modern twist of using the Internet and social media to cast a wide net in the search for solutions.

The appeal of prizes is clear. They are a way to draw ideas from people who would not normally do business with a government or corporation, a way to gather diverse views on how to solve a problem—and they only pay out if successful. They can provide significant financial leverage for the sponsor, with the combined investment by competitors far exceeding the prize purse.

Prizes have a long history of producing innovations. The Longitude Prize was offered by the British government in 1714, with rewards of up to £20,000 (worth more than $2 million today) for a practical method of determining a ship's longitude to within 30 nm. English clockmaker John Harrison won with his invention of the marine chronometer.

In 1795, Napoleon offered a 12,000-franc prize for a better way of preserving food to feed his invading armies. Confectioner Nicolas Appert won with a method for heating and sealing food in champagne bottles—giving birth to the canning industry. There was even a £1,000 prize, offered by the U.K.'s Royal Agriculture Society in 1852, for a fertilizer to replace expensive imported Peruvian guano. There is no record of a winner.

Aviation prizes began even before the Wright brothers' first powered flight, with Alberto Santos-Dumont winning the 100,000-franc Deutsch Prize in 1901 by flying an airship on an 11-km (6.8-mi.) course around the Eiffel Tower. But the role of prizes in advancing aviation really took off when the British Daily Mail newspaper offered £1,000 for the first flight across the English Channel—a prize won by Louis Bleriot in July 1909.

Between 1906 and 1930, Daily Mail offered more than 15 aviation prizes, leading to the first transatlantic flight in 1919 by John Alcock and Arthur Whitten Brown, and Amy Johnson's solo flight from England to Australia in 1930. Others joined the prize bandwagon: Japan's Asahi Shimbun newspaper offered $25,000 for the first nonstop transpacific flight, won by Clyde Pangborn and Hugh Herndon in 1931.

But the most influential aviation competition, then and later, was the $25,000 Orteig Prize for the first nonstop flight between New York and Paris. First offered in 1919, it was won in May 1927 by American aviator Charles Lindbergh in the Spirit of St. Louis. After his solo, single-engine flight across the Atlantic, interest in aviation soared, with dramatic increases in pilot licenses, aircraft registrations and airport construction.

While competitions continued, notably the Schneider Trophy seaplane races in the U.K. and Bendix Trophy air races in the U.S., their role in accelerating advances in aviation declined as the industry matured. Instead they pushed at the outer limits of aviation, notably the Kremer Prizes for human-powered aircraft, established in 1959, and the Sikorsky Prize for human-powered helicopters, first offered in 1980.

But Lindbergh and the Orteig Prize served as the inspiration when aerospace challenges began a rennaissance in the mid-1990s with the Ansari X Prize for private suborbital spaceflight. By then the industry was losing its luster as an innovator, as least in the eyes of the public and politicians. First offered in 1995, the $10 million Ansari X Prize was won in October 2004 by the SpaceShipOne, built by Burt Rutan's Scaled Composites and financed by Microsoft co-founder Paul Allen.

NASA had established its Centennial Challenges program by that point to run prize competitions ranging from astronaut gloves to lunar rovers. The agency awarded $2 million in prizes to Masten Space Systems and Armadillo Aerospace in the Northrop Grumman Lunar Lander X Challenge, and $1.47 million to teams from Pipistrel Aircraft and the University of Stuttgart in the Google-sponsored Green Flight Challenge.

But not all aerospace prizes have been a success. In 2004, hotel entrepreneur Robert Bigelow offered a $50 million prize for the first privately funded U.S. team to fly a reusable capsule capable of carrying five astronauts and docking with a Bigelow Aerospace inflatable space module. He even threw in the offer of $200 million in conditional purchase agreements and $800 million in options for flights of a selected vehicle, but the prize fizzled in the face of a lack of interest.

While prizes have been used for centuries, there has been little research into why they work—and when they do not—says Luciano Kay, a postdoctoral scholar at the University of California, Santa Barbara. His new book, Technical Innovation and Prize Incentives, is an analysis of recent aerospace prize competitions, including the Ansari X Prize, Northrop Grumman Lunar Lander X Challenge and the $30 million Google Lunar X Prize, now underway with the goal of putting a privately funded rover on the Moon's surface by 2015.

There are two key characteristics of prizes, Kay says. First is that they do not emerge from a vacuum. “It is not like you launch a prize and there is nothing there. Always there is something there,” whether technologies or markets, to build a challenge upon. Second is that publicity plays a major role, “not just for competitors, but also sponsors. Government agencies that launch prizes are considered more innovative,” he says.

Motivations to enter competitions are as diverse as the participants, and the cash purse is not the most important, says Kay. “There is more to a competition than the prize,” he says, noting the sponsor can be a key factor. “NASA is completely different to X Prize. It is known for aerospace and known for contracting opportunities. And you are dealing with a government agency, which is completely different to dealing with the private sector.”

The U.S. government's increasing use of prize competitions must be seen in the broader context of the Obama administration's push for “open innovation,” says Cristin Dorgelo, assistant director for grand challenges at the White House Office of Science and Technology Policy (OSTP). Open innovation is the concept of using external as well as internal ideas to advance technology.

“President Obama's 2009 strategy for innovation called for increased use of challenges by all agencies, and the America Competes Reauthorization Act of 2010 granted all federal agencies authority to conduct incentive challenges to spur innovation and solve problems,” she says. Since its launch in September 2010, the Challenge.gov portal for public-sector prizes has posted more than 235 offerings from 45 agencies.

NASA, and the Defense and Energy departments have led the field in expanding their use of prizes, and the government has established the Center of Excellence for Collaborative Innovation at NASA to provide guidance on designing, implementing and evaluating prizes. Pilot programs are underway with the Health and Human Services Department, Environmental Protection Agency, U.S. Patent and Trademark Office and others.

Use of prizes is broadening as agencies become more familiar with them, and learn when they make sense. “As experience in the public sector has increased, so has the savvy in designing challenges,” says Dorgelo. Competitions can make sense, she says, when the problem is tough or the target audacious, “and you want lots of new minds on a problem, citizen-solvers from other fields.” Prizes also appeal “because you pay only for success, which provides security and risk-mitigation for agencies.”

As the number of challenges grows, OSTP and the NASA-run center of excellence are capturing the lessons learned. These include how to structure the incentives, which can range from monetary prizes to an advanced market commitment—the promise to buy the resulting innovation—depending on whether a challenge is targeted at students or large manufacturers. Incentives can be “exposure to experts or celebrities, public awareness through marketing and PR, or advice on how to take a product to market,” she says.

While many government prizes are targeted at individuals, or university teams, some are aimed at encouraging innovation in existing industries. The Energy Department's SunShot Prize aims to spur low-cost rooftop solar-power installations by offering $10 million in prizes to the first three teams to demonstrate an average of $1/watt for non-hardware installation costs. To win, teams must deploy 5,000 small-scale rooftop systems before the end of 2014. “They are trying to move an entire sector,” says Dorgelo.

The government also gets involved in external competitions, she says, citing the X Prize Foundation's Progressive Automotive X Prize, a global competition that in 2008 awarded $10 million to three teams for cars that achieved the equivalent of at least 100 mpg in real-world driving. The competition drew 111 teams and the $5 million top prize was won by Virginia-based Edison2 with its 110-mpg Very Light Car.

Dorgelo also singles out online challenges conducted by the U.S. Air Force Research Laboratory (AFRL) and NASA. AFRL awarded $25,000 to a retired engineer in Peru for a method of stopping a fleeing vehicle at a checkpoint. NASA awarded $30,000 to a retired radar engineer in New Hampshire for an algorithm that predicts solar-particle events “better than NASA's own engineers could,” she says.

Based on his research, Kay suggests challenge designers consider some key parameters. First is to offer a set of incentives, not just a cash purse, but also publicity, prestige and contract opportunities. Second is to set a deadline that recognizes prizes tend to attract informally organized teams that not only have to develop the technology, but find resources and hire people. “You have to look at the timeline, and not just the technology availability,” he says.

Third is to choose a topic carefully because competitions do not work in every field. “Sometimes challenges can be very difficult to accomplish because of the knowledge base needed to start. For example, a prize for faster-than-light travel might need 50 years of research,” he says. “You need pre-existing solutions for the technologies. That tells us about the fields you can apply this to. You cannot find solutions to things that are completely out of this world.”

The Ansari X Prize, Kay says, built on research already conducted in supersonic and exoatmospheric flight, most notably by the North American X-15. Similarly, for the Lunar Lander challenge, “something already existed, from Apollo and the McDonnell Douglas DC-X. It was a low-budget competition to increase the efficiency of something that was already in place.”

The Google Lunar X Prize, meanwhile, has been designed “to set project management conditions rather than targets for technology,” Kay says. “The constraints of budget, source of funding and time set new conditions for managing a project that are in line with an open-source, low-budget approach to spaceflight.” This is encouraging competitors to “use open-source technology, things they can find, and not try to do something fancy.”

Technology-demonstration competitions like the U.S. Defense Advanced Research Project Agency's (Darpa) Grand and Urban Challenges for autonomous ground vehicles, and its latest Robotics Challenge for disaster-response robots, are so complex that to compete requires large, multidisciplinary teams. “Our Urban Challenge team involved a very large group of people, the largest we have assembled to work on one particular project because we had to tap so many types of expertise,” says Tony Stentz, director of the National Robotics Engineering Center at Carnegie Mellon University (CMU).

“The key to a successful challenge is to establish a lofty yet still achievable goal—a high bar to aim for, but not impossibly high,” he says. Advancing robotic technology is suited to a prize approach. “At CMU, robotics projects are fast-paced and challenging to begin with, and the challenges breed some good practices in getting down to the nuts and bolts,” Stentz says. “Competition really breeds a culture of risk-taking. It's more acceptable to try and fail than in the normal day-to-day business of research.”

Setting the bar high “encourages thinking outside the box,” he says. “Schedules tend to be accelerated, which forces participants to have a very clear focus, to cut through red tape and get over the usual petty impediments to progress and cut to the chase.” He also cites the team-building and “excitement factor” in a challenge —“everyone loves a competition with lofty objectives.”

CMU won the Urban Challenge in 2007, and has two teams competing in the Darpa Robotics Challenge with “many faculty involved, with all types of expertise.” The cost of such technology-demonstration competitions makes finding the resources “a challenge in itself,” says Stentz. While Darpa provided some funding for the Urban Challenge, “we had to raise substantial money to round out the work,” he says, adding that publicity, hands-on experience and intellectual property (IP) were reasons sponsors came on board.

“Darpa challenges are structurally different,” Kay says. “They have an initial round to identify qualified participants, which increases the chances of finding a better solution.” The agency then provides funding to continue development of technologies for a second round of competition—an approach used with both the Urban and Robotics Challenges.

“It is important for this kind of organization to have a set of people with different technologies able to compose different approaches to the same problem, even if they don't get any particular technology or IP at the end,” he says. “It's a more expensive approach. With a second round, and judges, the cost can be twice the prize money.”

Darpa runs some of the bigger government challenges. The America Competes authorization limits the size of individual prizes to $50 million, but most government challenges offer prizes of $10 million or less. The authority also limits participation to U.S.-based entities. To compete in NASA's Green Flight Challenge, Slovakia's Pipistrel and Germany's University of Stuttgart had to find U.S. partners.

“The U.S. federal government is at the leading edge of the use of incentive prizes,” says Dorgelo. While other countries are using prizes, including Canada with a C$100 million ($97.5 million) fund for agricultural challenges and the U.K.'s £1 million ($1.5 million) Big Green Challenge for community-led ideas to reduce carbon-dioxide emissions, “the U.S. is leading in institutionalizing challenges as a standard tool in every agency's toolbox,” she says.

Tap on the icon in the digital edition of AW&ST for more on historic aviation and aerospace prizes that have been awarded in the 20th and 21st centuries, or go to AviationWeek.com/innovation

Significant Aviation and Aerospace Prizes
Year Offered/(Won) Prize Winner
1906 (1910) Daily Mail London-Manchester flight (£10,000) Louis Paulhan
1908 (1909) Daily Mail cross-channel flight (£1,000) Louis Bleriot
1913 (1919) Daily Mail transatlantic flight (£10,000) Alcock & Brown
1919 (1927) Orteig Prize, solo transatlantic flight ($25,000) Charles Lindbergh
1927 (1927) Dole Derby, California-Honolulu flight ($25,000) Goebel & Davis
1930 (1930) Daily Mail solo England-Australia flight (£10,000) Amy Johnson
1930 (1931) Asahi Shimbun transpacific flight ($25,000) Pangborn & Herndon
1959 (1969) Daily Mail Trans-Atlantic Air Race (£40,000) RAF Harrier & RN Phantom
1959 (1977) Kremer Prize, human-powered flight (£50,000) Paul MacCready
1977 (1979) Kremer Prize, human-powered cross-channel flight (£100,000) Paul MacCready
1996 (2004) Ansari X Prize, manned reusable suborbital flight ($10 million) Rutan & Allen
2006 (2009) Northrop Grumman Lunar Lander X Challenge($1 million) Masten Space Systems
2011 (2011) CAFE Green Flight Challenge, fuel efficiency ($1.3 million) Pipistrel
1980 (2013?) AHS Sikorsky Prize, human-powered helicopter ($250,000) TBD
2007 (????) Google Lunar X Prize, privately funded Moon robot ($30 million) TBD