Prizes instead of patents?

Recently I read Jüri Saar's master thesis titled "Prizes: The Neglected Innovation Incentive" (also available online in PDF format). The thesis looks at the patent system and proposes a possible alternative based on prizes. An interesting concept which is especially compelling in light of the digital revolution and the Internet. The whole system of patents and intellectual property laws has created a complex maze of legislation which requires dedicated lawyers for navigation. The original system was never intended for the fast-paced development of the software industry.

Alternatively prizes could be used instead of patents to stimulate innovation and provide compensation for the efforts put into research & development. There are numerous real-life examples of how prizes have effectively been used to solve problems. Several such cases have been outlined in Jüri's paper such as the Longitude Act in the 18th century all the way up to modern day with the Ansari X-Prize and the open-source prize onmac.net.

Instead of hiring a small dedicated team of researches to work on solving a problem you can have the entire community do the research and only pay for the (best) solution once it's found.
A company called InnoCentive has been set up specifically for the purpose of bringing together the people with a problem and the people with a soution using prizes as the incentive. The service offered by InnoCentive helps to solve problems quickly and effectively but it does not solve the issue of intellectual property laws. The problem is that InnoCentive does not publish the solution and the IP rights are handed over to the seeker (prize offerer). This business model has also become known under the name crowdsourcing. A comprehensive article about this model can also be read here.

But crowdsourcing is not the most beneficial way of innovation from the community's perspective as the new owner of the solution still holds a monopoly over the marketing rights. This might be somewhat acceptable in industries where the research costs are incredibly high (e.g. pharmaceutical manufacturing) but it just doesn't fit for software development.

This is where open-source software prizes seem to offer the best solution. The onmac.net prize is a good example of this. Colin Nederkoorn wanted to use Windows XP on his Intel-based mac (before official possibilities were announced i.e. Boot Camp or Parallels) and offered a prize of $100 to anybody who could make it happen. However the solution would have to be open-source and therefore free for everybody. He also included the possibility for others to increase the prize money with donations. In the end the total cash prize was $13,854 and the solution was found in less than 2 months.

I believe there is a lot of potential for open-source prizes which are beneficial for both the developers and the community. The Internet is perfect for this kind of innovation and makes it relatively easy to coordinate and handle the administrative issues. There are also several examples of the emergence of this trend. The prize model has been adopted by an open-source mobile company called Funambol. They have a program called Funambol Community Code Sniper which lists a number of prizes for developing connectors and plug-ins for their software. Prizes range from $1000 to $3000 and the solutions will be made open-source.

Likewise Computer Associates announced prizes for developing open-source database migration applications. The commercial benefit for the company was clear - get people to switch database software. The largest prize was $400 000 and it was won by a team of software developers from India. All the solutions are now available for use under public licenses like the BSD Open Source License.

The notion of using prizes for future software development has a lot of potential. For further information on this subject I recommend reading Jüri's master thesis and also checking his blog Vabalog where he keeps track of more interesting developments in this field (blog is only in Estonian, use the search term "auhinnad" to find blog posts on this subject).