Graham Warwick Washington

Whether it is government budgets or corporate profits, when money gets tight in a downturn, investment in research and development suffers. The effects may not be immediate, but the impact on turning ideas into innovations and innovations into products can be profound and long-lasting.

In the search for more cost-efficient—and quicker—ways to innovate, government and industry are turning to the age-old mechanism of offering prizes to spur innovation and solve problems, with the modern twist of using the Internet and social media to cast a wide net in the search for solutions.

The appeal of prizes is clear. They are a way to draw ideas from people who would not normally do business with a government or corporation, a way to gather diverse views on how to solve a problem—and they only pay out if successful. They can provide significant financial leverage for the sponsor, with the combined investment by competitors far exceeding the prize purse.

Prizes have a long history of producing innovations. The Longitude Prize was offered by the British government in 1714, with rewards of up to £20,000 (worth more than $2 million today) for a practical method of determining a ship's longitude to within 30 nm. English clockmaker John Harrison won with his invention of the marine chronometer.

In 1795, Napoleon offered a 12,000-franc prize for a better way of preserving food to feed his invading armies. Confectioner Nicolas Appert won with a method for heating and sealing food in champagne bottles—giving birth to the canning industry. There was even a £1,000 prize, offered by the U.K.'s Royal Agriculture Society in 1852, for a fertilizer to replace expensive imported Peruvian guano. There is no record of a winner.

Aviation prizes began even before the Wright brothers' first powered flight, with Alberto Santos-Dumont winning the 100,000-franc Deutsch Prize in 1901 by flying an airship on an 11-km (6.8-mi.) course around the Eiffel Tower. But the role of prizes in advancing aviation really took off when the British Daily Mail newspaper offered £1,000 for the first flight across the English Channel—a prize won by Louis Bleriot in July 1909.

Between 1906 and 1930, Daily Mail offered more than 15 aviation prizes, leading to the first transatlantic flight in 1919 by John Alcock and Arthur Whitten Brown, and Amy Johnson's solo flight from England to Australia in 1930. Others joined the prize bandwagon: Japan's Asahi Shimbun newspaper offered $25,000 for the first nonstop transpacific flight, won by Clyde Pangborn and Hugh Herndon in 1931.