Perhaps I'm just noticing it more these days, but a lot of very smart businesspeople seem to be offering big prize money in the hopes of fueling advances across a variety of business sectors.
For example, on Monday, Netflix (NASDAQ:NFLX) announced it will offer $1 million to the first person who can improve the accuracy of the company's movie-recommendation system by 10% or more. On Tuesday, the Defense Advanced Research Project Agency (DARPA) selected 11 finalists to compete for a $2 million prize to create a robotic vehicle capable of successfully navigating an urban course. And on Wednesday, the X Prize Foundation -- the organization that last year awarded the builders of SpaceShipOne $10 million for making two suborbital flights within a week -- announced that it's going to offer $10 million to any team that can completely decode the genes of 10 people in 10 days.
All are worthwhile quests, but what is the average investor to make of all of these contests?
From my perspective, not much.
Of the three, the one that will mostly likely produce benefits for shareholders is Netflix's contest. The company obviously has a large vested interest in developing a better recommendation system, and to the extent that it can find someone to develop a system that's 10% better, the contest's prize should easily be able to pay for itself by generating an increased number of movie rentals and sales.
DARPA's contest is a little iffier. The prize is only $2 million, and while it will undoubtedly generate a spate of good publicity for the winner, it doesn't appear to me to offer a strong enough financial incentive to generate true innovation. As it stands, General Motors (NYSE:GM) will work with students from Carnegie-Mellon University, Volkswagen will work with Stanford University students, and Raytheon (NYSE:RTN) and Honeywell Aerospace, a division of Honeywell International (NYSE:HON), will also field teams.
My sense is that regardless of the contest money in this case, all of these companies will continue to pursue advances in robotics. It's even possible that the DARPA contest is counterproductive, in that it might cause these companies to channel resources away from endeavors that could produce more viable commercial products.
The final contest, the gene-decoding challenge, is the one I find the most exciting, and I believe it will ultimately lead to the most change in terms of commercial opportunity. Yet it's also perhaps the least likely to lead to any appreciable opportunity for investors.
I say this is not because I don't believe someone will win the contest. I do. In fact, I'm sure that dozens of corporations, including smaller ones such as CuraGen's (NASDAQ:CRGN) 454 Life Sciences as well as larger corporations like Applera's Celera Genomics (NYSE:CRA), are already feverishly working away on technologies that they believe will help them claim the prize.
Nor is it because I doubt that the sequencing of the human genome will revolutionize health care. I do.
Rather, it's because I'm not at all confident that the vast majority of businesses involved in the sequencing of the human genome will ever make money -- even if their technology works as promised. To date, only one other industry has lost more money in the history of its existence than the biotechnology industry -- and that is the airline industry.
I mention this because in 1927, Charles Lindbergh won the Orteig Prize, and along with it the $25,000 purse for being the first person to successfully fly nonstop between New York and Paris.
The contest was a huge success, and it fueled an unprecedented amount of publicity for both Lindbergh and the emerging aerospace industry. This interest, in turn, generated additional investments that fueled even more progress.
To the credit of the founder of the Orteig Prize, the aerospace industry went on to usher in an unbelievable amount of change in how we live and work -- so much so that, today, cross-oceanic travel is commonplace.
I am confident that, much as with airline travel today, having our personal genomes sequenced will also become commonplace in the not-so-distant future. I'm just not sure very many businesses will be able to profit from it because of the intense competition in the biotechnology industry.
Further complicating matters is that to the extent that the sequencing of the human genome leads to "personalized" medicine, it may be difficult for biotechnology and pharmaceutical companies to create a sustainable business model industry that allows them to profit from making individually tailored drugs for me and you.
In the final analysis, I view these prizes kind of like those little toy prizes in Cracker Jack boxes. They intrigue us enough to capture our attention, and often they are successful in getting the customer to buy the product the first time. But ultimately, the contents of the box have to stand on their own merit.
If a product can do that, then you've got a business. If not, you just have a contest.
Netflix is a Motley Fool Stock Advisor recommendation. For more of Tom and David Gardner's market-beating stock picks, try out Stock Advisor free for 30 days.
Fool contributor Jack Uldrich is the author of two books on nanotechnology, including Investing in Nanotechnology: Think Small, Win Big. He does not stock in any of the companies mentioned in this article. The Fool has a strict disclosure policy.
