About a year ago, Michael Smith, a top official of the Case Foundation, in Washington, and Beth Noveck, a technology official at the White House, made plans to gather a group of foundation and federal officials “around a table” to discuss how prizes could drive innovation in government.
By the time that roundtable became reality last month, it had morphed into a daylong meeting attended by 250. The table was out—a ballroom at the Department of Housing and Urban Development was needed instead.
The session’s popularity reflects the rising interest in “prize philanthropy,” or the use of cash awards to find solutions to some of the world’s biggest problems. Just a few years ago, the big-money prizes were something of a geeky side show in the nonprofit world, focused primarily on solving scientific or technical challenges.
Now prizes are going mainstream. They are at the heart of some of the ballyhooed collaborations between foundations and the federal government, and several grant makers are hoping that prizes may lead to breakthroughs in persistently difficult areas like improving education and curbing poverty.
The Joyce Foundation, for example, recently worked with McKinsey & Company to brainstorm 10 to 15 prizes that the federal government could use to spur innovation in issues like work-force development, education, and nutrition. And the foundation presented some of those ideas at last month’s strategy session in Washington. Ideas included a national prize to the community-college system that raises graduation rates by the highest percentage and a contest for schoolchildren aimed at redesigning the food pyramid so that it makes more sense to young people.
“Prizes offer a creative way of solving problems that have resisted many attempts,” says Ellen S. Alberding, Joyce’s president.
Ms. Alberding and Mr. Smith, the Case Foundation’s vice president of social innovation, say prizes have now become a key component of many foundation toolboxes. The Rockefeller, John S. and James L. Knight, Robert Wood Johnson, and Bill & Melinda Gates foundations, among many others, now use prizes in their grant making.
“People have a new appreciation for what prizes can do for them,” Jonathan Bays, a consultant in McKinsey’s social-sector office, said last month at a session on prizes at the Council on Foundations meeting in Denver. “We expect to see continued growth.”
Urging Caution
The X Prize Foundation spurred much of the initial enthusiasm for prize philanthropy in 2004, when it awarded a $10-million prize for the first privately financed rocket into space. Peter H. Diamandis, the group’s founder and chairman, says he believes prizes can eventually reach 10 percent of giving by foundations—or as much as $30-billion per year.
A 2009 study of prize philanthropy by McKinsey found that the cash available from large prizes ($100,000 or more) totaled $375-million last year.
As prizes become a more-popular strategy, even some fans of the approach are urging caution. Too many overlapping prizes could dilute the effectiveness of the incentive, notes the McKinsey study. And a financial reward is not always the best route to a solution. Mr. Diamandis says the X Prize Foundation rejects more than half the ideas that it considers because a financial prize is not the right approach.
“The worst strategy is to create your prize hammer, and then go around looking for nails,” Mr. Bays said at the session last month.
While now in vogue, philanthropists have offered prizes for hundreds of years. In the 18th century, a clockmaker won the Longitude Prize, offered by the British government, for solving the problem of measuring longitude at sea.
The current interest in the strategy is being fueled by improvements in technology, especially the rise of Facebook, Twitter, and other online networks, which make it easier for foundations to let people with the best solutions find them, wherever those people happen to live. Foundations are also attracted to the prize strategy because it gives them a chance to step away, with at least part of their budget, from traditional grant making—a process that some critics see as cumbersome, paternalistic, or both.
“It’s about opening the tent and creating much more action than we have in these silo processes that we have created in philanthropy,” Mr. Smith, of Case, says.
The Case Foundation was one of the first to promote an increasingly popular type of prize philanthropy—contests that rely on getting large numbers of average citizens to vote for prize recipients or make a gift that will be matched with a cash prize. (See related article.)
The Right Audience
Foundations that dangle prizes hope the cash itself will draw in experts. But the sizzle of a prize only goes so far—foundations still need to get their problem in front of the right audience.
That’s where organizations like InnoCentive come in. The for-profit company’s primary asset is its online network of 200,000 engineers, scientists, and businesspeople. The company throws out thorny problems to its network with offers of cash awards for those who offer the best solutions.
InnoCentive was started nine years ago by Eli Lilly and Company to drive down the cost of research and development in the pharmaceuticals business. But it has expanded its business to serve foundations and charities.
The Rockefeller Foundation, which has worked with InnoCentive since 2006, is currently tapping the company’s network to help organizations in developing countries find solutions to dire water-related problems.
For example, the InnoCentive “solver” who comes up with the best easy-to-use method for purifying water in Uganda’s Lake Victoria will win $20,000. Through its partner, GlobalGiving, an online giving site, Rockefeller is paying InnoCentive $15,000 per challenge posted on the company’s site, plus 20 percent of the value of any challenge that is solved. Once the solutions are found to the water-related problems, GlobalGiving, will present the projects to its donors in the hopes they will support the new ideas.
“It’s crowd-funding meets crowdsourcing,” says Dwayne Spradlin, InnoCentive’s president.
Mr. Spradlin says organizations like his are making it easier for foundations and charities to innovate, despite their lack of in-house research teams that corporations and large universities possess.
“If you are able to articulate what success looks like, and you have a little capital, you now have access to the world,” Mr. Spradlin says.
‘180-Degree Moments’
For foundations, prizes can also provide a quick way to gather news about the areas they support with grants.
Four years ago, the Knight foundation could sense the disruptive changes coming in journalism, but it didn’t know much about the models of the future, says Eric Newton, vice president of the fund’s journalism program. So it started the Knight News Challenge, a contest that awards $5-million per year for innovations that use new technology to distribute local content to cities and towns.
“It was one of those 180-degree moments,” Mr. Newton says. “Whatever we did, it needed to be the opposite of how a foundation normally works.”
The risk-taking inherent in the venture has spilled over into Knight’s regular grant making and made it more comfortable with unorthodox grants like supporting PBS Engage, a Web site used for experiments with new kinds of media.
The news challenge also has given the foundation an early look at trends: When it noticed a bunch of applications flowing in from nonprofit news sites, which now exist in more than half the states, it created a separate $25-million challenge to support those upstart organizations.
“Because we had the contest, we had our fingers on the pulse,” Mr. Newton says.
He cautions that competitions do have a downside—they are a lot of work simply because of the volume of submissions. Knight pays a large group of reviewers a stipend to help whittle down the large applicant pool to the 50 or so who will actually be interviewed.
“You need a certain amount of help to turn 2,400 applications into 10 or 12 successful winners,” he says.
Solving Social Problems
The big test will be whether the prize strategy can achieve as much in social realms as it has in science and technology. Decades of work by foundations in areas like reducing global poverty and eliminating the achievement gap between white and minority students has led to relatively little improvement, and it’s not clear whether prizes will expedite progress. Mr. Diamandis, of the X Prize Foundation, has been meeting with foundations and government agencies about an African entrepreneurship prize, which would go to a new company started by an African entrepreneur who creates the greatest number of “uplifting” jobs over a certain period of time.
Education is also a challenge. The Broad Prize for Urban Education, awarded since 2002 by the Eli and Edythe Broad Foundation, goes to the school district that demonstrates the greatest improvement in student achievement while reducing gaps among poor and minority students.
Erica Lepping, a Broad spokeswoman, says some winners, like Long Beach, have consulted with weaker districts, like Fresno. “Information sharing is one of the better things that have come out of the prize,” she says.
The X Prize Foundation hopes to offer a prize in education as well, but it has struggled to find clear, objective standards for outstanding achievement that would denote a winner.
“We’ll keep hammering,” Mr. Diamandis says. “When we find the right one, we’ll jump on it.”