Fuel for Thought

His $10 million X Prize proved that money can drive big ideas. Now he's looking for more of them.

When a spindly rocket ship known as SpaceShipOne cleared an altitude of 62 miles above the Mojave Desert back in October 2004, it became the first private craft to make a suborbital flight twice in two months--and beat out 24 other competitors to win the $10 million Ansari X Prize. The craft now hangs in the National Air and Space Museum, alongside the Spirit of St. Louis and the first plane to break the sound barrier. But to Peter Diamandis, who conceived the contest and spent a decade praying that someone would actually win it, that triumphal voyage meant much more than cutting a check to two men who didn't need it (Burt Rutan and Paul Allen). It marked a return to a form of philanthropy that dates back at least to the British longitude prize of 1714, one that spurs innovation with the oldest motivator of all: a nice pile of cash.

Diamandis is adapting philanthropy, using cash as a "high-leverage mechanism."

And now that he has shown just how efficient that incentive can be, Diamandis wants to do the same in other fields, from nanotech to education. "I'm trying to rework philanthropy," he says, "and make it about not just giving money aimlessly, but using money as a very high-leverage mechanism."

His flash of greed-is-good insight came in 1994, after he read The Spirit of St. Louis, Charles Lindbergh's account of his 1927 transatlantic solo flight, which netted him the $25,000 Orteig Prize. "Lindbergh made the flight to win a prize, not as a personal objective," says Diamandis, 44, himself a pilot and the founder of several space-related companies. "I really saw the power of that prize written out for me in hard numbers: Nine teams spent [a combined] $400,000 to win that $25,000. It occurred to me that what space really needed was a prize to compel folks to build the ships that would take the rest of us there."

Diamandis started looking into cheap, reusable ways to get to space back in 1980, when he was at MIT and founded Students for the Exploration and Development of Space (Jeff Bezos was a Princeton chapter head). His unveiling of the X Prize transformed the quixotic mission into a noble--and highly promotable--quest. "All of a sudden, something that was dangerous was attractive to potential sponsors who saw it as a highly visible thing, like race cars," Diamandis says. "Or it was attractive to wealthy individuals who were looking to do something fun."

A cash prize also confers a greater meaning than just its dollar value, says Steven Reiss, a professor of psychology and psychiatry at Ohio State University. "The money is signaling, This is an important competition because somebody is willing to part with $10 million for it," he says.

In the case of the X Prize, that somebody was an insurance company, which essentially bet that no one would win. (Most of the premium for the policy came from the Ansari family, which made a fortune in telecom.) Future prize money will come from other sponsors.

Money aside, competing against others and watching others compete taps into something primal. Why else would we watch sports? asks Gregg Maryniak, executive vice president of the X Prize Foundation and the person who gave Diamandis the book on Lucky Lindy. "I think that's because it has to do with the way we've evolved. And I think a lot of people who didn't really care about the outcome of our race were really interested in the interpersonal competition between the different teams."

In the future, about two-thirds of the X Prize Foundation's awards will be for more earthbound endeavors, with space-related challenges making up the rest. One, inspired by board member J. Craig Venter, will award a prize for rapid genome sequencing; another will focus on energy through a contest launching this month to develop an affordable mass-production car that gets at least 250 miles to the gallon and is, in Diamandis's words, "something you would want to drive."

Erik Lindbergh, a foundation board member (and the aviator's grandson), also hints that an education prize may be in the works--not for students or teachers who just improve test scores but for those who decipher the underlying causes of poor academic performance. "If [children] are always concerned about their basic hierarchy of needs . . . they're not going to learn," he says. "We're thinking around problems, and the potential to award the actual students or the teachers, instead of the school district or the government, will get people excited on a grassroots level."

The first X Prize's success also made an impression at other organizations. Space entrepreneur and Las Vegas hotelier Robert Bigelow has announced a $50 million prize for the first privately funded spaceship that can send five people into orbit twice in 60 days. This past fall, the History Channel kicked off a contest for new inventions, with the winner to receive a $25,000 grant.

Even the government is getting in on the act: The Defense Advanced Research Projects Agency (DARPA) awarded $2 million in October to a team from Stanford that won its Grand Challenge by building an autonomous vehicle that successfully navigated a 132-mile course through the Nevada desert. And NASA hired Diamandis and Maryniak to help develop contests for the space agency. "We have a vision for space exploration, and embedded in that are a lot of technical challenges that are pretty tough," says Brant Sponberg, the program manager for NASA's Centennial Challenges, a series of contests to develop new technology for space. "We needed a mechanism to reach out to sources of innovation wherever they might lie."

Unlike traditional government-dominated grant giving, prizes "allow everyone and anyone to compete up to the last minute, and we at NASA don't have to be smart enough to pick the right performer," Sponberg says. During the first two $50,000 challenges, held last October, he was delighted by the diversity of entrants. "We had small companies, university students, and hobbyist-enthusiasts--the Robot Wars type. We really had the full gamut."

Sponberg also says Diamandis and Maryniak have performed a real service by bringing back the competitiveness of the early aviation days: "Peter and Gregg are the ones who really rediscovered this, and we owe them a debt of gratitude."

Diamandis, the frustrated but ever optimistic would-be astronaut, started the X Prize Foundation to meet a challenge that had stymied him for decades. Watching someone take the money home has only made him eager to give away still more. "If you are passionate about solving a problem, if you fund a prize with enough money, and you set out clear enough rules," he says, "you are literally reaching across space and time into the future and solving that problem."

Michael Prospero (mprospero@fastcompany.com) is a Fast Company reporter.

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