Atlas of Innovation

Absolute prizes offer a reward to the first team or individual that achieves a specific, predefined objective. Unlike relative prizes that reward the best performance among competitors, absolute prizes set a clear threshold that must be met—either you achieve the goal and win, or you don’t. This clarity makes absolute prizes powerful tools for focusing innovation efforts on well-defined challenges.

The Ansari XPRIZE for private spaceflight exemplifies the absolute prize model. By offering $10 million to the first team to launch a reusable crewed spacecraft to space twice within two weeks, the prize created a clear target that ultimately attracted over $100 million in competing team investments. The winning SpaceShipOne helped catalyze the private space industry we see today.

Absolute prizes work best when you can precisely define what success looks like, when the goal is ambitious but achievable with current or near-term technology, and when you want to attract diverse approaches from teams you might not have identified through traditional funding channels. They’re particularly effective at drawing in unconventional innovators and generating public excitement around important challenges.

Definition

Prizes incentivize innovation by offering a lump-sum reward to one or multiple innovators if their work meets technical targets or outperforms their peers’. The funder announces a goal and a prize amount, entrants then race to achieve the goal, and the sponsor awards the prize funds after verifying success.

Prizes generally fall into two categories: absolute prizes, awarded for meeting technical benchmarks, and relative prizes, given to the top performer(s) among competitors.

Why might prizes be the right funding approach?

Prizes can be a useful tool for stimulating innovation when three conditions hold: (1) the funder can define and evaluate how success will be judged in advance, (2) the pathway to achieving success is uncertain, and (3) the winning solution can spread easily without major scale‑up hurdles. Most US federal agencies can run prizes under the America COMPETES Act (15 U.S.C. § 3719). Innovation prizes offer several advantages:

Creating an open field for applicants: Anyone who thinks they can prevail is able to enter, so funders never have to pick winners in advance. Since teams invest their own time and capital upfront, the “payment‑on‑success” filter attracts confident, capable entrants.
Public spotlight: A high‑profile challenge may rally media attention, philanthropic co‑funders, and new technical talent, often leveraging resources far beyond the prize purse.
Decoupled from scaling: Prizes are particularly useful for innovations that diffuse easily. For example, because innovators do not need to handle manufacturing or delivery, prototypes or designs produced through a prize competition can be scaled by actors other than the original innovator, opening the door to a broader pool of competitors. Some prizes don’t aim for innovations that can scale, but are instead broadly beneficial for producing a new idea, discovery, or proof of concept.
Low administrative burden: Relative to other funding mechanisms, a prize typically avoids certain bureaucratic steps for funders and participants, such as the need to review initial applications, negotiate contract terms, or monitor adoption. Funders pay once when the goal is met, keeping oversight light and tying spending to real progress. However, depending on factors like how easily progress can be measured, prize programs can have significant administration and implementation costs, which can far exceed the prize purse itself.

Types of prizes

Funder can structure prizes in one of two forms — absolute prizes and relative prizes:

Absolute prize: A monetary award given to the first innovator(s) who achieves a pre-specified technical goal or performance threshold. Absolute prizes establish fixed criteria upfront and reward the first solution that meets those requirements. The funder only pays upon success, transferring technical risk to participants while creating clear incentives for innovation.

Relative prize: A competitive funding mechanism that rewards top performers based on their achievement relative to other participants rather than meeting a pre-specified absolute threshold. Unlike absolute prizes, which may have no winner if no one meets the target, relative prizes guarantee a winner by ranking participants on specific performance metrics and awarding the best performance. This approach creates strong competitive incentives while removing the risk of no successful outcome.

	Absolute Prize	Relative Prize
How is the winner chosen?	First solution(s) to clear a pre‑set technical bar	Best performer(s) on a ranked leaderboard
What is the payout certainty?	No payout if no one meets the bar. If the bar is set too low, a funder risks paying for trivial advances.	Always pays out, even if performance is poor or incremental
When are they most useful?	When funders can define and evaluate success in advance	When funders can evaluate progress along some dimension, but may struggle to set the right threshold. Relative prizes mitigate the risk of choosing a threshold that proves either too easy or impossible to achieve.
What is the risk of overpaying?	Lower risk of overpaying since the funder can benchmark payout to social value	Higher risk of overpaying since you specify a reward without knowing whether participants contribute to innovation

What can go wrong?

While prizes can be highly effective, funders need to design them carefully to avoid common pitfalls:

Sizing the prize: If the prize amount is too low, it won’t attract serious participants; if set too high, it may waste resources or encourage excessive duplication of effort. Capital‑intensive projects can’t easily be financed on the slim chance of a prize, jeopardizing participation.
Setting the technical requirements: Overly specific technical requirements can stifle creativity, while ones that are too vague make judging difficult and open the door for disputes.
Weak incentives for impact: Upfront funding provides no direct incentive to participants to ensure their innovations deliver real-world impact. Participants may optimize for prize criteria at the expense of real-world usefulness. This can occur when targets or judgment criteria are poorly defined or difficult to measure.
Duplicative effort: Multiple teams may burn resources chasing similar solutions when contracting with a single company would be sufficient to achieve the innovation goal.

Intellectual property considerations In the textbook version, an innovation prize is often a lump‑sum payment that buys the intellectual property rights of the solution and places it into the public domain. Today, many prizes let winners retain their patents, so the prospect of future revenue keeps innovators motivated. Funders should match the model to their goal: require open release when rapid, barrier-free diffusion is the priority, or allow intellectual property retention when follow-on private development matters. Funders can also pursue patent buyouts after awarding a prize, rather than making intellectual property transfer a condition of the prize competition.

Examples

Examples of absolute prizes, which reward the first innovator to meet clearly defined technical goals, include the following:

Ansari XPRIZE: The Ansari XPRIZE was a $10 million prize for the first private organization to build a reusable spacecraft and fly it to 100 kilometers altitude twice within two weeks. Twenty-six teams invested over $100 million collectively in pursuit of the prize. The competition was won in 2004 by Mojave Aerospace Ventures, led by Burt Rutan and funded by Paul Allen, with their experimental spaceplane SpaceShipOne, which completed the required suborbital flights.
Department of Energy L Prize: The Department of Energy launched the L Prize in 2008 and offered $10 million and eligibility for promotions for the first LED bulb to meet targets for efficiency, light quality, and operating life. In 2011, Philips won with a 10-watt LED lamp designed to replace a 60-watt incandescent bulb.

Examples of relative prizes, which reward top performer(s) based on their achievement relative to other participants, include the following:

DARPA Grand Challenges: The Defense Advanced Research Projects Agency (DARPA) launched a series of prize competitions known as the Grand Challenges to accelerate the development of self-driving ground vehicles. In 2004, DARPA offered a $1 million prize to the fastest autonomous vehicle able to complete a 142-mile desert course. No team met the minimum criteria that year. However, when the competition was repeated in 2005, several vehicles completed the course, and Stanford University’s entry, “Stanley,” won the $2 million prize. The challenges helped lead to Google’s self-driving car project, which launched in 2009 and actively recruited DARPA Challenge veterans, including Stanford’s software lead Mike Montemerlo. That project later became Waymo in 2016 as a separate company within Alphabet.
NASA Power Beaming Challenge: In 2009, NASA’s Centennial Challenges program, in partnership with the Spaceward Foundation, held a competition to advance space elevator technology. The team that achieved the highest score, calculated by multiplying its average speed by the payload mass, would win the competition. LaserMotive won the only prize awarded, earning $900,000 for building a laser-powered device that successfully climbed a 900-meter cable suspended by a helicopter.
XPRIZE Carbon Removal Prize: The Carbon Removal XPRIZE was a $100 million prize for scalable, cost-efficient carbon dioxide removal technologies. It incorporated milestone payments alongside a grand prize. The competition attracted over 1,300 teams to compete and awarded one grand prize and three runner-up teams.

Though originally structured as an absolute prize with three fixed tiers, the Longitude Prize was ultimately administered in a more bespoke manner, making it neither a purely absolute nor relative prize:

Longitude Prize: Created by Britain’s Longitude Act of 1714, the Longitude Prize promised £20,000 (equivalent to roughly £4 million today) for a method to determine a ship’s longitude within half a degree on an ocean voyage. Two smaller tiers were offered for less accurate tools. Over the following decades, the board responsible for administering the prize awarded partial rewards to more than 10 individuals pursuing diverse approaches. The largest winner was clockmaker John Harrison, who received several payments totaling £23,065.

Because prizes usually only pay once an innovator wins, they often need complements that sustain teams during development or to ensure adoption afterward. These can include:

[[Milestone Payments]]: These provide financial support during long-term development, ensuring teams can sustain progress before reaching the final goal.
[[Advanced Market Commitments]]: AMCs guarantee demand for winning innovations, facilitating adoption and scale-up beyond initial technical success. They are particularly useful when technologies require significant user adoption or integration into existing systems, where prizes often fall short.
[[Fieldbuilding]]: Both fieldbuilding and prizes can be used when a funder does not have a specific team in mind. Fieldbuilding is best when no capable teams yet exist, and funders can use prizes to shift research effort toward a target or emerging field.

Definition

Why might prizes be the right funding approach?

Types of prizes

What can go wrong?

Examples

Related funding approaches

Further reading