Encouraging Innovation in the Internet Age

Three years ago, the movie rental company Netflix announced a contest. Develop an improved version of the movie recommendation software on its website and win a prize of $1 million. Thousands of teams from more than 100 nations competed. The winning team submitted its entry just twenty minutes before another team submitted a proposal that received an identical score. The contest rules anticipated such an outcome and provided that the first to submit would prevail.

An article in today’s New York Times describes the contest and puts it in the broader context of the “prize model” of modern innovation. More and more often, companies are offering substantial prizes to volunteers who propose solutions to problems that are posted online. The companies that put up the money get hundreds of very smart people working on their issues and, even though the prize is substantial, the companies end up paying about $1 hour for all the research that is conducted on their behalf. The participants in the contest get more than the chance to win the prize. This type of collaborative problem-solving effort has numerous collateral benefits that often lead to new business opportunities.

This is just another example of how the world and the world of business is changing. The closely-held, proprietary information models that dominated the early age of the Internet (think Wang) are today’s ancient artifacts. Today, everything is about openness and collaboration.