Prize Insurance Puts A Price On Conventional Wisdom

from the what-a-deal dept

Tue, Sep 4th 2007 3:46am — Joseph Weisenthal

Since the first X-Prize competition, we've seen more and more interest in this model as a way to spur innovation. However, there are still a lot of questions about the competition model, in terms of efficacy and utility for private industry. While businesses are interested in the concept, the exact model remains unclear. Economist Alex Tarbarrok relates an interesting point about how the X-Prize was funded. Apparently, the group behind it didn't actually raise the prize money, but rather it bought an insurance contract that would pay off in the event that someone actually won. And who wrote the insurance contract? None other than the established experts in the field: Boeing and McDonnell-Douglas. It just so happened that these companies thought the prospect of a successful launch was basically nil, so they gave the organization a very generous price on this insurance contract. The fact that the prize was ultimately claimed is a good indication that even the established leaders in a field don't always have the best grasp of what advances are just around the corner. It also suggests a possible business model, whereby middlemen attempt to arbitrage the disparity between what the establishment deems possible and what individual inventors think they can accomplish.

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Filed Under: prizes, x-prize

17 Comments

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dorpus, 4 Sep 2007 @ 4:36am

The list of mediocre inventions
How often have we seen multi-purpose broom-dustpan assemblies? Dubious "engineers" claiming to have discovered free energy devices? Boats of "revolutionary design" made out of soda cans? Or the science fair projects of high school students who calculated some mathematical constant to whatever, riddled with errors, but the judges were too ignorant to notice?
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- dorpus_is_a_troll, 4 Sep 2007 @ 6:52am
  
  Re: The list of mediocre inventions
  This troll really brings down the tone and quality of this site.
  
  Mike, I can understand your reluctance to censor comments but how about implementing a comments section similar to that use on slashdot where we can mod comments up/down or even choose not to see comments from certain user?
  
  You can make this an optional service so casual surfers can still post comments without signing up but for us regular readers, it would be a very helpful service.
  
  Thanks!
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  - Anonymous Coward, 4 Sep 2007 @ 9:56am
    
    Re: Re: The list of mediocre inventions
    A slashdot style comments cabal on Techdirt?
    
    No Thanks!
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  - dorpus, 4 Sep 2007 @ 9:56am
    
    Re: Re: The list of mediocre inventions
    So I make you pull your own hairs out, and you want to see this site become a closer clone of slashdot. But what if slashdot thinks highly of me? You may get modded down instead.
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  - Anonymous Coward, 4 Sep 2007 @ 11:09am
    
    Re: Re: The list of mediocre inventions
    I'd rather see you go than dorpus.
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JC, 4 Sep 2007 @ 6:30am

re: dorpus
How is that at all on topic? Do you ever discuss things relevant to the topic at hand, or do you just like to bitch? Eh, I know the answer already, I've been reading this forum too long...and you are REALLY annoying.
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- Anonymous Coward, 4 Sep 2007 @ 11:14am
  
  Re: re: dorpus
  Why don't you just quit reading his comments? Oh.. wait, then YOU wouldn't have anything to bitch about, would you?
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Stuart, 4 Sep 2007 @ 7:34am

Dorpus
Get rid of this idiot.
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Ajax 4Hire, 4 Sep 2007 @ 7:52am

It is the underdog, little man that generates
the new inventions, ideas and technological advances.

Big Corporation/Companies are not built for innovation, they are built to take advantage of new ideas/new technologies/new patents. It is extremely difficult to get truly new and revolutionary ideas to fruition in a corporate structure. New is unsafe and unsafe is not good for business.

Look at the greatest inventions/ideas/technologies of mankind and you will find a single person behind them.

Galileo, Newton, Einstein, Bell, Gutenberg, Ford, Edison all are recognized simply by their last names and their accomplishments.

Imagine Einstein trying to develop Theory of Relativity with a corporate sponsor, timelines and oversight committees.

Ford and Edison built corporation on the ideas and inventions they created, not vice-versa.

Yes, today many new ideas/inventions are coming out of corporations but that is because we are entering a new age:
People will align themselves with corporations not countries. But that is a topic for another day.
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- Joe Smith, 4 Sep 2007 @ 8:51am
  
  Re: It is the underdog, little man that generates
  It is extremely difficult to get truly new and revolutionary ideas to fruition in a corporate structure. New is unsafe and unsafe is not good for business.
  
  Ultimately everything is done by individuals but corporations have provided the environment for many extremely important inventions, some of which could never have come from a garage inventor: a practical light bulb; the alternating current electric engine; the transistor and the integrated circuit were all products of industrial research, only the alternating current electric engine could conceivably have been invented by a lone individual working in his garage.
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  - Ajax 4Hire, 4 Sep 2007 @ 1:09pm
    
    Re: Re: It is the underdog, little man that genera
    I agree, there are some technologies and advances that could/will only come from corporate/government endeavors.
    
    Nuclear power, Space Exploration, Transportation, Structural Engineering (to name a few) are all to expensive or too large a scope to be managed by one.
    
    And so true, it ultimately boils down to 1 individual with a good idea to start the up-hill battle.
    
    But where all of your examples listed, a major corporation took an existing budding "new" idea and turned it into a real business, a real "practical light bulb".
    
    Even the transistor and integrated circuit were based on theories set forth by lone individuals. Again, corporate sponsorship allowed the Bell Labs folks the time and resources to put to practical use the theories.
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Anonymous Coward, 4 Sep 2007 @ 10:05am

Gambling
Isn't this just a form of gambling? I mean, one side thinks the odds of an event occurring are higher or lower than the other side does and basically makes an investment, or "bet", based on that?
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JS Beckerist, 4 Sep 2007 @ 10:16am

re: Gambling
Exactly, it's all about probability. "If you pay me 50,000 now AND every year you want this to run, we'll shell out a million if someone can actually do this!"

Considering it was BOEING who was financing this, I assume they did a LOT of research on their own end. It was probably cheaper for them to finance this for a million then spend a hundred times that in R&D, design, implementation...etc...

P.S. I concur with the comment rating if nothing else, dorpus is commonly an off-topic troll and it's QUITE annoying!
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Anonymous Coward, 4 Sep 2007 @ 10:23am

Social Policy Bonds
Sounds a lot like a Social Policy Bond. Where the face value is redeemable only if the goal is met.
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Sola, 4 Sep 2007 @ 10:25am

Dorpus
A thumbs up/thumbs down system similar to Engadget would be quite sufficent.
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aspir8or, 6 Sep 2007 @ 9:11am

Who would decide on what need's inventing
and would the required inventions be things that there is a genuine need for, not just a glamor option to get the backers media coverage? Finding something like a fast diagnosis and cure for legionnaires disease is nowhere near as sexy as the X-Prize.
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david alliman, 26 Jan 2008 @ 11:52am

"the little man with the very big invention"
Could it be possible that there may be an unknown nondiscript individual somewhare with an idea or an invention that would revolutionise our ideas of travel, add to our quality of life, and also be applicable in almost every aspect of human existence?.
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