Incentive Prizes: Shooting for the Stars

Taking his cue from Lindbergh's famous prize-winning moment, Peter Diamandis fulfilled his dream to send people into space through his X Prize

Ever since Peter Diamandis was a child, he has wanted to fly into space and dreamed of working for the National Aeronautic & Space Administration. "I would call it my mission in life," he says. "I had the desire and intention to become a NASA astronaut but I found out how difficult it is, and how few people actually get the chance."

Diamandis found a way to help give people that opportunity. He became a commercial space entrepreneur, founding several companies that do everything from designing and launching satellites to sending passengers on flights to experience weightlessness.

Still, it bothered Diamandis that space travel was limited to so few astronauts. Then he read The Spirit of St. Louis, by Charles Lindbergh, about the historic flight from New York to Paris that won the $25,000 Orteig prize and helped jump-start the aviation industry in the U.S. "It hit me that the right prize could drive the creation of a new generation of private spaceships," he says.

So, in 1996, Diamandis started the X Prize Foundation and the Ansari X Prize, a $10 million reward for a privately funded team to build and launch a spacecraft capable of carrying three people 100 kilometers (62.1 miles) above the earth's surface twice within two weeks. The prize, named after the Iranian-American family whose multimillion-dollar donation made it possible, was awarded in 2004.

Diamandis holds an undergraduate degree in molecular genetics and a graduate degree in aerospace engineering from MIT. He also earned an MD from Harvard Medical School. He's now shepherding the X Prize Foundation to offer prizes in areas including education, genomics, global development, and lunar and underwater exploration. Diamandis is also winning backing for the prizes from such corporations as Google (GOOG) and Progressive (PGR) (, 9/19/07). writer Rachael King recently spoke with Peter Diamandis about incentive prizes and why they work.

What impact did the Orteig prize have on the aviation industry?

It inspired nine different teams who spent $400,000 [on a $25,000 prize]. The number of passengers [in] the U.S. went from about 6,000 to 180,000 within 18 months. The number of pilots tripled. The number of airplanes quadrupled in the U.S. within that 18-month period post flight.

It took you the better part of 8 years to raise the money for the first X Prize. Why do you think executives and corporations were so reluctant to give support initially?

Well, it was simply the mindset that had been built over the last 40 years and that was exactly what we were trying to battle, the notion that space flight was only for governments, that it was not something that small groups could do, that it was extraordinarily dangerous. We've become extraordinarily risk-averse in our country on many levels, on a government level, on a corporate level—sometimes and even on an individual level. Something goes wrong, you call the lawyer. We've become so litigious that it's become difficult to do something truly new and innovative because doing something really innovative, something that will lead to a breakthrough, involves risk. It involves the potential to fail.

How did you move from starting the X Prize successfully to starting a number of new prizes?

On the day the X Prize was won, Oct. 4, 2004, Google changed the Google doodle to have SpaceShipOne flying over its Google logo. And they linked to our Web site, with incredible benefit for us. I ended up going up to Google and speaking at the Googleplex to a group of some 2,000 people. And after that presentation, I met [Google co-founder] Larry Page, who was basically wearing a t-shirt and jeans and wearing a backpack and said, "I love what you're doing," and he ended up joining our board and becoming very central in helping us move things forward. We basically said, let's look at doing X Prizes in a range of different areas besides just space.

Do you expect that each of these X Prizes will also spawn new industries?

That's the hope. The model that we're hoping to prove is that a $10 million or more prize will garner $100 million or more in team expenditures and drive $1 billion or more in follow-on business and investment.

Do companies like Google support these prizes because they're looking for new industries, or is it a personal interest?

In the case of the Google Lunar X Prize, it was a personal interest for Sergey Brin and Larry Page. Second, it was a very innovative marketing approach. Sergey has said they never saw Google putting its name on a stadium or a traditional sponsorship, but this was the sort of thing that was a very high-leverage sponsorship opportunity. Third, it helped drive the objective of education and inspiration for math, science, and engineering, which is a personal goal.

Can anyone participate in X Prizes?

Yes, that's very important. It's one of my fundamental tenets, which is that true breakthroughs occur when you look at an industry or an area from a completely new point of view. We're so stuck in the way we think. So, really, it doesn't matter where you went to school, what you've ever done before, whether you've ever gotten a government grant. If you do this, and you win, you're immediately rewarded.

Do you think incentive prizes are flourishing now because, as some might say, there's a lack of government support for innovation in the U.S.?

To truly have a breakthrough, we need to be willing to take some big risks because the day before something is truly a breakthrough, it's a crazy idea. So, if a government takes a big risk and fails, you get congressional investigations that follow. And if a large corporation takes a big risk and fails, you have the stock price plummet. So where in today's society do we allow people to take big risks? It's a very difficult thing. I believe that X Prizes become a way to have an off-balance sheet risk-taking. You put up the prize money and if someone does it, everybody wins. If no one does it, no one loses.

What advice would you give a corporation that wanted to start an incentive competition?

That it's not easy, it needs to be done well. There have been many attempts and many of them fail. You have to not pre-guess the solution, you have to remain unconstrained in who can compete.

Are you going to launch more X Prizes?

Yes, we're looking to launch about two to three X Prizes per year. We'll get up to about 10 X Prizes over the course of the next 4 years. As a nonprofit foundation, we are always looking for corporate players who want to get involved in sponsoring our prizes or getting involved in supporting the X Prize Foundation.