Peter Diamandis - MEGA X Prizes

dear Peter Diamandris,

As a subscriber to the Stanford Entrepreneurial Thought Leaders podcast I heard your remarkable story of how the X Prize-project came about. Your first prize, of $10 million, was for the first private team to build and launch a spacecraft capable of carrying three people to 100 kilometers above the earth's surface, twice within two weeks. I especially liked the fact that the X in your projects name was to be filled later on with the name of a great benefactor which you never found, and how you smartly leveraged your capital via an insurance.

As I looked on your blog I noticed the video about the idea for a Mega X Prize. I've thought about it for a while, and my conclusion is that it's not a good idea. Here's why. You are extremely effective on things that have been proven possible but where big corporation don't dear to go (yet). What you leverage with (relatively) small money is amazing and my suggestion is you stick to that. The Mega X Prize can't have that leverage, because it will be small money compared to the system that you're trying to influence: scientific research (mostly funded by governments), R&D by big companies and business angels and VC-capital for startups in new fields.

The X Prize isn't so great because it does something in a direct way about the first two: scientific research and R&D by big companies. It's great because it takes proven concepts (hey, we proved that it's possible to go to the moon; hey, in the 1980 Greenpeace created a fuel efficient car out of the Renault Twingo!) and show that it's possible to bring those concept in the consumer market. The Spirit of St Louise was not the first plane, it was 24 years after the Wright brothers. The flight proved an application of a great innovation, it wasn't a great innovation in itself. To illustrate the point of

So what it is that X Prize actually leverages? As I said, you are extremely effective on things that have been proven possible but where big corporation don't go. So why don't they go there (yet)? Well, the reason is because they are very well managed. Good management means: listen to your customers, make products that create even more added value and working productively with your partners (sounds familiar maybe, it's Christensens' Innovators Dilemma). The customers of Boeing don't asks for a plane that can fly to the moon and customers up until 2007 didn't ask for fuel efficient cars. Even if they did, it's absolutely not clear that there is money to be made at this moment. To illustrate this point: none of the big car makers is participating in your new Progressive Automotive X Prize. There's more to be said on this, but you get the point: good management prevents wild adventures.

Still, change happens. But breakthrough innovations almost always come from outsiders. The airline industry was not created by the big ocean steamline companies, Apple came up with the iPhone as a total outsider and a cottage industry for dead cheap PC's almost killed Big Blue, the company that practically invented the computer.

Let's take a closer look at the advent of the PC. In 1975 two Steves set up Apple Computers Inc. They started as a cottage industry, in the garage of Steve Jobs' parents. They were not alone, there were many companies like Apple, hundreds of them. What these companies did wasn't rocket science, all the knowledge was there already for decades. The PC basically was a really cheap box filled with really cheap, standard parts that could easily be assembled. Most of those companies died of, some struggled, some really made it bigtime. The big companies only entered the game when the cottage industry had proven that there actually was a market for something they considered to be an inferior product. It took the number one computer producer in the world, IBM, many years to create it's own PC. Not because it didn't have the knowledge, but because it's engineers didn't think of it as 'real' computer. When IBM finally introduced it's PC it came without it's own operating system. That was because the company didn't believe they would sell enough PC's to get a reasonable return on it's investment if it also would build a special OS. So it asked Bill Gates to deliver an OS and that is how Microsoft started it's path to become the worst modern time, government supported monopoly. It nearly killed IBM.

So the role of the X Prize in my humble opinion: it's a catalyst for cottage industries that apply new but proven knowledge and new but proven technology in a field where there's no proven market but where many people suspect and hope that there could be a market. By kickstarting the cottage industry you create a showcase for this and that attracts investors. The first investors are the inspired ones, like the way Paul Allen funded the winner of the first X Prize. After that come the bold & the beautiful, like Richard Branson and his Virgin Galactic, and hopefully also the boring dealmakers that see a healthy market. Once the new cottage industry starts growing into a real market will the big companies follow. The X Prize gives idealists inside big corporations and within government the arguments to start spending money. At that point, the X Prize will start to have a serieus impact on the R&D of companies and subsequently on the research at universities.

A Mega X Prize wouldn't change your ways to have impact, simply because your budget will be tiny compared to the system you're leveraging. A bigger X Prize doesn't make the effect of the leverage bigger. The cottage industry is run by idealistic and visionary entrepreneurs, not by gamblers. They are not in it for the money, they use the prize to convince the worried spouses and friends that working on their big dream might actually pay off one day.

Hopefully this helps in shaping your thoughts. In the mean time, please continue your wonderful work. I've posted this comment as an article on the ExcellentGovernment.org blog.

Dear Mr Peter
Greetings accross Seven sea from India. Thank you very much for the out of box thinking and creating xprize, which is one of your interest.

Proposing the Xprize for Design , Development and implimentation of "Interntional space Station 2.0 to share the load with ISS. This endevour will be the next step for the space colony to moon base to the mars etc...

This is going to be inbetween steps from Earth to moon to mars and for building space colony.

Grand Challenge
Design, Development, Implementation of ISS2.0 on the orbit defined and prososed be able to dock the space craft, fueling facility, R and D facility, lauching facility, assembling facility.

Lets take a Step............Million Miles will follow us..........

Bipin B Agravat
Candidature ISU' MSM"