Peter Diamandis wonders what fields have the potential to innovate with prizes like his creation, the X PRIZE.
Question: What was it that first inspired you to create this prize?
Peter Diamandis: I’m a nine-year old kid inside and my passion has been all my life to want to travel into space. I drank that Kool-Aid and I got that bug as a kid. I saw Apollo going on, on TV. I was born in ’61, and I believed it was going to happen. I believed that once we got to the Moon, there was no stopping us. But in fact, we did stop. And it’s been literally 40 years since we’ve been to the lunar surface. And I ended up realizing that NASA was unlikely to get me into space, or get me to the moon or beyond, and I needed some other way to drive this. And I became very much, if I have to describe myself, I’m sort of a Libertarian Capitalist, and I was looking for, what’s the economic engine that’s going to drive us into space? So, I received a book one day from a great friend of mine, Greg Marinak called, The Spirit of St. Louis, that tells the story of Lindbergh, and I had no idea that Lindbergh crossed the Atlantic to win a prize. I thought he woke up one day and just decided to go east. But in fact, there was this Frenchman born in Paris, came to New York with pennies in his pocket, Raymond Orteig was his name, became a bus boy, moved up and eventually bought the hotel he worked at, started a second hotel, and just after World War I, when aviation just started getting going, he became enamored by this idea of aviation. He decided to put up a prize for the first person that could go non-stop between his birthplace and his new home, in either direction. But if you knew about the trade winds, you’d go East.
As it turned out, nine different teams from around the world, mostly the U.S., mostly France, went after this. And the nine teams spend $400,000 to win this $25,000 prize. Sixteen times the prize amount. I went, oh my god. I’m making notes in the margins about how much money is being spent. Admiral Byrd, the first guy to fly to the North Pole, for example, spends $100,000 to try to win this $25,000 prize and he crashes on takeoff because he overweighs his airplane with Champagne in China to celebrate when he lands in Paris, as if there would be no Champagne in Paris when he gets there. And the most unlikely guy to do this, Charles Lindbergh, who had been flying the mail for just a handful of years, makes this effort. No one would sell him an airplane; no one would sell him an engine because he was unproven. Who is this guy? I mean, for God sakes, we don’t know who he is. He’s going to kill himself and set back aviation a decade.
Well, of course, he does just the opposite. He makes the flight; 33 ½ hours later, he lands in Lebourget and he becomes famous overnight. And still today, all school kids know his name. But what hit me was not the efficiency of this prize, which was amazing, right? You put up $25,000; you get $400,000 spent to win it. But that within 18 months of Lindbergh making this flight across the Atlantic, something miraculous happened. We go from, in 1927 when there were 6,000 paying passengers in all of the United States. And people who flew in airplanes were called aeronauts and dare devils. This is Eric Lindbergh, Charles’ grandson. He is a great friend on our Board of Trustees who tells us the story. Went from being aeronauts and dare devils, 6,000 of them to 18 months later where they were passengers and pilots and there were 180,000 of them. This 30-fold increase, this prize caused this dramatic change in the paradigm. And that inspired me to create the Ansari X Prize for space flight. And so that’s how it got started.
Question: What fields have the potential to innovate with prizes?
Peter Diamandis: One of my goals is to reinvent philanthropy. Today, philanthropy is a very unsophisticated, old world process where people who make a shitload of money go and give it away and when they’re making their money, they’re focused on 10x, 100x returns on the dollar. Every dollar they use has got to be basically leveraged. But then when they go and they give the money away, they’re happy with 30 cents on the dollar, ten cent – oh they really tried hard, too bad they didn’t do it. That’s ridiculous. You should command and demand the tenfold leverage on your dollars when you give it away as well.
So we look for areas that are stuck, where there’s a stigma, where there is – people have given up that there can be a solution for it. You know, in the space business, space had gotten very much to be the aerospace industry. This is something that governments only do and it’s where the Boeings and the Lockheed’s and the Northrop’s and so forth. And there’s no way these small companies could do it. The automotive industry is the same way. So, these industries have become old age and they’ve become ossified. They can’t innovate themselves out of a paper bag sometimes. This is where putting up a clearly defined measurable prize that says to the world, “I don’t care where you’ve gone to school, what you’ve ever done. You do this and you win.” And it brings really orthogonal thinking to the table. People who don’t have the degrees, people who would never get a National Science Foundation Grant because they don’t have the education or haven’t done the research, but they may have the most brilliant idea because they’re not stuck in the way they think.
It was Henry Ford who said, “An expert is someone who can tell you exactly how something can’t be done.” And it’s true.
Question: What is the process by which you build the prizes?
Peter Diamandis: We bring prizes together in a number of different ways. First of all, we have our Board of Trustees who we built very carefully. It’s a large number of really self-made innovators; Larry Page, **** Camen, Elon Musk, Ratan Tata from India, the Ansari family that funded our first Ansari X Prize are incredible individuals. And then we have our Vision Circle, which hare our largest benefactors. These are individuals like Sergei Brendon and Eric Schmidt, again the Ansari family. And these groups, the Board of Trustees and our Vision Circle members get together twice a year with us and we have a visioneering session and for two days we debate and we discuss what are the world’s biggest problems. Where are they stuck from diagnosing tuberculosis in three hours in remote areas, to diagnosing cancer early, to mapping the ocean floor, to trying to deal with the ocean plastics issue, or reinventing education. And we debate and we discuss what would make a great X Prize.
We have our X Prize labs. We have an X Prize lab at MIT, at USC, at the University of Washington, and IIT, Bombay. And these are interdisciplinary graduate level programs where young students that don’t know what’s not possible come up and say, let’s create an X Prize around this area. And then the staff, the senior staff that really is constantly thinking, so whenever I’m meeting somebody, I’m interviewing them and saying, what do you think a great X Prize would be? And brainstorming it over lunch. So, that’s sources for ideas.
Question: Why does this prize mentality work so well?
Peter Diamandis: At the end of the day, the people who end up funding our prizes are corporations and philanthropists. And they end up literally, if you’re a venture capitalist, you’re interested in moving a technology forward. You’ve got to choose your horse ahead of time. So, if you’re interested in water technology, energy technology, you get to choose between the three or four companies that you have insight into. And you have to make a bet on them before they prove anything out. And you don’t know about the other hundred out there that might have much better technology. And it seems really silly to me to do it that way.
When you put up a large incentive prize, you get the entire world. So it pulls out of the woodwork all hundred companies and you get to see them all. And you automatically back the winner. So, for me it’s a very logical, it’s highly leveraged, typically 10 to 50 fold the amount of money you put up, you got spent by the teams to win it. You are creating brand new industry and you have full industry insight. And in the winning of the prize you create a brand new marketplace. Instead of just buying the product that you incentivized in the first place.
You know, Paul Allen, who backed Burt Rutan in a recent interview with Dave Moore, who ran Paul Allen’s venture here. Dave said that Paul Allen invested somewhere between $20 and $30 million and that he got probably 5 or 10x the money back by backing it in terms of the licensing rights and the tax deferrals and the technology they developed and the media and so forth. So, in this time when money is tighter and tighter and tighter, we believe that incentive prizes are extraordinarily efficient way for companies to drive breakthroughs in their industry. You’ve got companies like Netflix, and Cisco and others creating incentive prizes inside their company or in their area to drive. You have to ask yourself the question, do you have the smartest people in the world working for your company? And if you do, you’re lucky. But if you don’t, put up the incentive. We get what we incentivize and cast it out to the world. And have someone who is absolutely brilliant who’s a 22-year old in India who says what about this way? And who revolutionizes the way you do business.
We become stuck in the way we think. We have to. We as the leader in the field has been doing what they do all of their lives. And when someone comes through that is doing something that is extraordinarily risky, they have a lot to lose. And so their willingness to take the risk is very low. But when you bring people in who’ve got nothing to lose, they are literally willing to risk their lives, that’s where breakthroughs come in. The day before something is truly a breakthrough, it’s a crazy idea. So, the question companies have to ask, or governments have to ask is, where do we allow crazy ideas to bubble up? Because if there is a failure, what happens? Someone gets blame. There’s a lawsuit, there’s a congressional investigation. And so, those things shut down the creative engine.
And one of the people who I have a tremendous level of gratitude for and excitement about is Ratan Tata, the Chairman of Tata Industries. They give out an award every year for the team in their company that took the biggest risks. That’s going to drive innovation. So, you get what you incentivize, and I do believe that the best way to predict the future is to invent is yourself. So, that’s what we do. We drive people to invent the future they want to create by incentivizing it.
Recorded on January 26, 2010
Interviewed by Paul Hoffman