22nd Century Philanthropy: High Efficiency, High Leverage

So you're trying to fight cancer, solve poverty, educate children...solve the grand challenges of our day. How would you like to make sure that your philanthropic donation was actually used to solve your chosen challenge? Not to fund attempts at a solution, not to fund ideas, but to fund THE solution that would be known in history books as a pivotal moment when an intractable problem was conquered.

Hold on, it gets better than that. What if your donation caused others to jump on your bandwagon and spend 10 - 50 times as much to lick the problem? It's not a fantasy; it is the economic reality of incentive "X PRIZEs" -- a very efficient and highly leveraged way to drive philanthropic objectives... But more on this later.

There is a growing trend to make philanthropy more results-focused and efficient. Successful entrepreneurs are translating their business savvy into philanthropic enterprises that speak the language of the corporate world: venture capital, ROI, open information. Philanthropies like Google.org and the Skoll Foundation are turning .com success stories into .org business ventures that pay dividends in social benefit -- capitalism for the good of humanity.

The goal of this new generation of "philanthropreneurs" is to get the greatest return on every charitable dollar. To this end, a historically proven mechanism for success is re-emerging -- the "incentive prize."

Incentive prizes are a time-honored mechanism for driving breakthroughs. One of the most famous prizes in history -- the Longitude Prize of 1714 -- led to the development of accurate nautical navigation. In 1919, Raymond Orteig offered a $25,000 prize for the first nonstop flight between New York and Paris. The competing teams spent $400,000 in pursuit of the purse, multiplying Orteig's investment 16x. Charles Lindbergh won the prize in 1927. His victory captured global attention and launched a new aviation industry that revolutionized the way people travel.

Large incentive prizes break through market and government bottlenecks. They reach across national and disciplinary boundaries and attract the intellectual and financial capital required to achieve breakthroughs through innovation. Public competitions shape public attitudes and spur innovation adoption.

An incentive prize for achieving a specific goal stimulates entrepreneurial investment that produces a 10x - 50x return on the prize purse, and at least 100x in follow-on investment and social benefit. It offers foundations and philanthropists the opportunity to complement conventional giving strategies with low-risk, highly efficient, highly leveraged approaches. Best of all, purses are only paid on success.

Prizes are also incredibly liberating for the competitors. Unlike a grant, a prize does not impose budgets, reporting requirements or overhead. It frees entrepreneurs from the constraints they find most limiting. It says, "I don't care where you're from, where you went to school, if you have ever gotten a government grant... If you achieve the goal, you win and get the cash."

By clearly defining a finish line up front, prizes indirectly manufacture breakthrough results. People stop asking "can it be done?" and start thinking "how will we be the first to do it?" In the jargon of science, a paradigm shift occurs. Limits become mere challenges and barriers all of a sudden become breakable. Suddenly it's no longer a question of "if" but rather "when?"

Inspired by the Orteig Prize, the X PRIZE was announced in 1996 to stimulate a breakthrough in spaceflight by offering a $10 million prize to the first privately financed team that could build a three-passenger vehicle and fly it 100 kilometers into space twice within a 2-week period. As it was later titled, the Ansari X PRIZE for Suborbital Spaceflight inspired 26 teams from seven nations to compete and invest more than $100 million in pursuit of the $10 million purse. On October 4, 2004, the Ansari X PRIZE was awarded to Mojave Aerospace Ventures (Burt Rutan backed by Paul Allen) and it's SpaceShipOne, marking the beginning of the personal spaceflight revolution and signifying a renaissance in prize philanthropy.

The flight of SpaceShipOne was ground-breaking in two respects. First, by launching an entirely new industry of private spaceflight, it clearly established that non-government sponsored spaceflight was achievable and practical. Second, it underscored that large, inducement prizes are highly effective tools for stimulating creativity, inducing investment, and spurring innovative and unique answers to challenging problems.

The X PRIZE Foundation's truly unique innovation in philanthropy has attracted the attention and support of many forward-thinking, results-driven change-makers. Larry Page, co-Founder and President of Google put it best: "The success that the X PRIZE Foundation has achieved so far with minimal resources is astounding. It is the kind of leverage that we all look for. The X PRIZE model has huge potential to unlock innovation around the grand challenges that are important to each of us." Page joined the X PRIZE Foundation Board of Trustees to help turn the organization into a world-class prize institute.

The X PRIZE Foundation is now planning to launch $250 -- $500 million in prizes over the next few years. Our demonstrated expertise in identifying the principal impediments to progress -- whether lack of established commercial markets or the need for advances in technology -- uniquely qualifies us to extend the incentive prize model to other important domains that we identify as structurally, culturally, economically or technologically stagnant.

On October 4, 2006, X PRIZE Foundation announced the launch of its second prize -- the $10 million Archon X PRIZE for Genomics. Our goal is to greatly reduce the cost, and increase the speed of, human genome sequencing. This achievement will unleash a new era of personalized, predictive and preventive medicine, eventually transforming medical care from reactive to proactive.

We are currently investigating prizes in other key verticals: education, life sciences, exploration, global entrepreneurship (poverty), energy and the environment.

It is not unreasonable to forecast that with 10 - 15 successful X PRIZEs totaling over $250 million, the combined investment by the competing teams will exceed $2.5 billion, which in turn will result in more than $25 billion in industry development and social benefit. This is ultimately the goal of the X PRIZE Foundation -- to combine the best of philanthropy and entrepreneurialism to produce a better, more efficient mechanism of world-changing.

Comments

[realitytrumpsbull]

Yeah yeah yeah...show me the self-powered home project/solar panel pole barn initiative, or how about show some REAL entrepreneurial/exploratory spirit, and finally put some type of permanent structure on the moon? No more tourist resort slave camps, do some REAL pioneering stuff that's quite literally 'out of this world' etc...

[dadw5boys]

The large Salaries for the CEO of these organizations was left out of the article.
How many charties take 50% or more of the money for overhead or hide a large amout of the money in investment accounts that will ensure the organization can continue to pay those high salaries for ever?
How much money actually leaves the charity and reaches the organization it was intended to help?

[Primadonna]

Philanthropreneuralism is evolving as the next step in the progression of what is/was currently thought of as fund-raising for a particular cause. If we can embrace versus finding fault with it then we can overcome division which only proves to slow down processes.

Perhaps if we keep our mind on the goal (a cure for a disease, new technology to purify water, etc.) then we can rally for unity amongst all foundations, etc. The time of "there's not enough to go around" whether it be in money, the most brilliant minds, us versus them, etc., is of an old paradigm which will slowly be left behind.

We're living in an amazing time of change, not because of pure idealism, but because we must in order to sustain humanity and our earth. Now ... if we can figure out a way to get the Mansanto's and Dow Chemical's of the world to stop producing poisons - there's an entire industry there for ridding the earth of their pillaging. Of course, it's never too late for Mansanto and Dow Chemical to have a "shift" in their perspective/directive (consciousness) and gear up to be on the forefront of this new industry in cleaning up the earth.

[NABNYC]

Unfortunately the modern-day philanthropists seemed primarily motivated in their charitable work by the same drive that motivates them in their private lives: to gain more money and power for themselves.

The Clintons, for example, have set up their own personal charity named after themselves - the Clinton Foundation, or something like that. Bill Clinton receives millions of dollars from corporate interests and then "gives" millions to his own charity, thereby avoiding having to pay taxes on his earnings. Bill and Hillary then can decide where to spend their charitable money, keeping all the control in themselves. Gates, Buffet - all the same nonsense.

Here's what should happen. Limit charitable tax deductions to something small. Tell these rich people to pay taxes so the government has money to provide assistance to people in need. Let the people, through the government, provide the help, and take that control away from these few multi-millionaires. Eliminate all tax deductions for people who "give" to their own private charities.

[maddogbitesback]

These days it does seem the government is not interested in giving help to anyone who actually needs help such as a child who has no insurance. In fact, the government seems devoted to giving more to the very rich and the arms industry. A mercenary in Iraq probably earns three times what a G.I. earns.

[StefInCanada]

Sorry, my bad. SpaceShipOne's Delta-V is only 1.7 km/s, not 3.1 km/s as I said above. I was overly pessimistic in my estimates of gravity and atmospheric drag.

[StefInCanada]

It seems to me that leveraging prizes make for great headlines: "Tier One wins Ansari X Prize: private spaceflight to follow." Unfortunately, it takes more than dreams and gumption to solve hard real-world problems. It takes real advances in engineering and science to make progress on problems of interest to improving the state of the art. These advances come on the backs of real investments in the relevant disciplines, not through incentivizing desires. The concern is that governments may find it easier to prepare a number of purses for big-ticket prizes, and then reduce funding for the heavy lifting that gets you there. The Ansari X Prize, miraculous as it seems, intentionally set the bar low enough that amateur organizations could apply. The delta-V to fly up to 100 kilometers altitude and come back down is only 3.1 km/s, a far cry from the 9.4 km/s required to get to orbit. Prizes can never really change what is possible, only what is achieved.

[begreen]

It would be interesting to see this model played out in conservation/environment. Would it be effective in energizing regional public interest litigant organizations? If so, how so?

Working in conservation, it is particularly frustrating to see a lot of the money trending toward the big name nationals for what seems to be nebulous and often anti-controversial missions ~ when the results are often seen in the less-known regional organizations willing to take on controversy straight to the courts.

It would be interesting to see exactly how controversy rolls in ~ or out... whether the results are really the end-game...

Also, is it uniquely constrained to the development of technology. How would the model play out in incentivizing successful social/environmental success in movements not leveraging technology ~ but legislation or judicial precedent?

[Rethymniotis]

Mr. Diamandis makes a persuasive case for the leveraging power of large-scale prizes. I urge him to consider the potential of small-scale prizes too:

If today's American schoolchildren are to grow up into people who can win X-Prizes someday, they need an incentive to do well in school. A small shot at a large prize far in the future is not much of an incentive. Cash money, today, is more effective.

So I propose that some quirky but practical-minded philanthropist set up a nationwide chain of "Quiz Parlors", something like the pinball arcades of old. Kids would come in to take quizzes, for money. No pass-fail criteria, just so many dollars per correct answer. More dollars for harder questions. Ideally, enough dollars so that a kid could accumulate the equivalent of a college scholarship this way.

But it's important that this "pay for performance" be cash on the barrelhead, not some abstract credit redeemable years hence. Sure, kids are likely to spend the money foolishly, on hip clothes or flashy gizmos and such. But (and here's where the leverage comes in) their friends will see them doing it. The whole social order of the school lunchroom will change. The nerds and geeks will suddenly be the cool kids everyone envies. The jocks and clowns will no longer get _all_ the girls :-)

Kids devote serious effort to mastering video games. Why not algebra tests? Because video games are tests that offer _immediate_ rewards: "pass the test" and you get to take a harder test! You don't "fail", you simply rise to the highest level your talent and perseverance allow. And you can show your accomplishment off to your friends. Envious, _they_ devote effort to mastering the game. Imagine if the "game" was math instead of Nintendo.

X-Prizes can only stimulate useful activity if they are offered to people _capable_ of winning them. It would be nice if some of those people turn out to be Americans. The Americans of tomorrow are schoolchildren today. Let's throw a little incentive _their_ way.

-- TP

[alkamm]

Rethymniotis is absolutely right on. Instead of giving money for various forms of research, the philanthropists of today should subsidize education by giving prizes to kids who do well.
I'd extend the prizes to parents whose kids do well on various tests. Many wealthy and middle class parents routinely pay for good grades, so these prizes would only be fair.
Someday, the rich philanthropists might actually be taxed sufficiently to make up for the exploitation of those they employ or variously entertain. Google might even be able to make it up to the Chinese who are incarcerated because of its cooperation with the Chinese commies intelligence apparatus.
I'm sure that a better tax system would increase taxes on polluters who depend on despoiling the environment for their obscene profits. Tax money from these and other more or less guilty parties could be used for these Quiz Parlors and other educational carrots.
This incentive idea is so good that there must be institutional reasons why it is not tried. Can we all say, old-boy networks and crony capitalism? Lingering Puritainism that says only the rich should have monetary incentives to study?

[zaneblue]

It's about time.

[maddogbitesback]

It is better than what the government does to promote innovation. In England there is work on an innovative way of getting drugs to the third world at affordable prices.

[RobertArend]

I'd like to see this as a means to neutralize the Charity-Disease Industry.

Where is the incentive for a cure for cancer if the cure will put that charity and all of it's employees out of business. Same with MS, Parkinsons, Heart Disease, Lukemia, and the many other organizations that have been recieving decades of donations with cures never discovered.

__two hats

[Adirondacker]

It doesn't put them out of business, they just have to change their target. Polio was nearly eradicated with the Salk vaccine but the March of Dimes continues on and on and....

[yellowdogSC]

NEARLY eradicated.

I don't know the scope of the MOD's efforts, but polio has made a serious comeback in India (for one.)