Can X Prizes Spur Innovation?

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Last April his foundation said it would host a $10 million competition for biofuels, with later awards for the creation of a clean aviation fuel, improved energy storage, and a system to provide water, electricity, and broadband service to villages in the developing world. But the group has pushed back deadlines as Diamandis' deputies studied "hundreds of ideas," says Jaison Morgan, who heads the prize development office. "There are breakthroughs, but not one bold enough for us now. We want a prize that will revolutionize things, to capture the public's imagination."

That may be too tall a challenge. The bigger the problem, the more likely that a lot of money and effort have already been spent trying to solve it, undermining the impact of even a well-endowed contest. And alternative energy is one of those pursuits that governments and private industry invest billions of dollars on every year. "The biggest incentive is big markets," says Vinod Khosla, a co-founder of Sun Microsystems (JAVA) and among Silicon Valley's largest investors in alternative energy.

Diamandis says that even in crowded spheres, his X Prize can push research in a direction it wouldn't ordinarily go. Ultimately, he wants to parlay the interest of benefactors in self-promotion into a social good—"to solve big problems and affect how people do their thinking." That's a laudable goal. But as Diamandis himself concedes, not every problem can be fixed with a contest.

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LeVine is a correspondent in BusinessWeek's Washington bureau.