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In Defense of Space Prizes

The success Hyperinflation record of prizes aside, real valuefor accelerating creation has to be innovation and constrained at leveraging scarce least partially by funds is quite the boundary remarkable conditions of the economic system

During a speech as part of the Republican Florida primary, Newt Gingrich proposed setting aside 10% of NASAs annual budget (roughly $1.8 Billion) to support prize competitions to encourage greater commercial activity and investment in space. While some may think this idea is unaffordable or even zany, it has many supporters in the space industry and, if scored appropriately against its annual budget, could even have considerable support within NASA. By scoring I mean that it would hardly be fair to deduct the full amount of the hypothetical prize amount from NASAs budget as the prize may not be won for many years, if at all. The success record of prizes for accelerating innovation and leveraging scarce funds is quite remarkable. The primary obstacle to more and larger prizes has not been that they do not work, but that Congress for the most part does not like them. As it was explained to me by a leading space policy analyst on the Hill, Congressmen do not like to vote money for something unless they know what district will benefit from it and when. An open ended commitment on future tax dollars that Congressmen cannot have a hand in allocating is just too much for many politicians to stomach. Prizes, therefore, end up being difficult to protect during budget negotiations and are often the first to go. And yet the prizes do work. Here are three recent examples: Ansari X PRIZE. On October 4, 2004, the X PRIZE Foundation awarded a $10 million prize to Scaled Composites for building and launching a spacecraft capable of carrying three people to 100 kilometers above the earth's surface, twice within two weeks. This $10 million prize inspired Burt Rutan and Paul Allen of Microsoft fame to invest a much greater amount in their effort, not counting the many other teams that raised money and tried, but failed to win the prize. After winning this prize, Scaled Composite was able to attract Virgin Galactic to become its strategic partner. Virgin Galactic is aggressively pursuing a space tourism business plan. In 2009, less than five years after the prize award, Virgin Galactic raised $380 million from Aabar Investments for a 31.8% stake in the company, an $875 million valuation. In 2001, Aabar invested another $110 million to increase its stake to 37.8%, a $1.8 Billion

can now work out what NASA calls the ilities, meaning repeatability, reliability, maintainability

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valuation. One may dismiss all of this as mere thrill rides for the 1%ers, but the benefit to space development is a business that can now work out what NASA calls the ilities, meaning repeatability, reliability, maintainability versus the status quo of costly and infrequent expendable rocket launches. some entrants will spend as much as 5 times the prize amount in their efforts with expenditures of 2.5 times the prize purse being relatively common Google Lunar X PRIZE. Google has sponsored a $30 million X PRIZE to be won by the first privately funded teams to safely land a robot on the surface of the Moon, have that robot travel 500 meters, and send video and data back to the Earth. To date, there are 26 active teams around the world competing for this prize. The X PRIZE Foundation estimates that, based on its and other groups experiences with prize competitions, some entrants will spend as much as 5 times the prize amount in their efforts with expenditures of 2.5 times the prize purse being relatively common. Just do the math and you will quickly see the enormous leveraging of tax dollars prizes could achieve. But then there is the snicker factor. Who cares if a bunch of space cadets blow their money on a pipe dream? What does that have to do with the real world? Well, here is a partial list of some of the most recognizable academic and industry partners involved: Carnegie Mellon, MIT, Penn State, University of Alabama, Aerojet, Alcoa, Caterpillar, Dynetics, Draper Laboratories, Lockheed Martin, MacDonald Dettwiler & Associates, Pratt & Whitney Rocketdyne, Sierra Nevada Corp., and Teledyne Brown Engineering, not to mention a few wealthy Silicon Valley entrepreneurs. Well, okay, so perhaps its not a big joke, what about an actual lunar market? According to a 2009 report conducted by Futron Corporation, the market for commercial services to support pre-cursor scientific and exploratory missions, as well as unmanned cargo delivery and logistical services to the lunar surface, is estimated to be in excess of $1.5 billion over the next decade. Additionally, an internal study presented to the NASA Commercial Lunar Working Group at the Lunar Science Forum on July 2009 predicted that the commercial lunar services market for NASA-related surface activities alone will be closer to $3 billion over the next decade. A NASA robotic lunar exploration program study concluded that at least 20 unmanned surface missions would be required to provide reliable ground truth on the Moons surface composition. While this may be a moot point for NASA if the U.S. does not decide to return to the Moon, a number of other nations have stated aspirations for missions to the surface of the Moon in the 20152030 time frame.

The value of just knowing which techniques and technologies do not work was worth far more than [the] small investment.

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NASAs Centennial Challenges. None of this leveraging effect is lost on NASA. Its experience with competitions has been very successful despite extremely modest budgets for prizes. Still, even at these modest prize levels, NASAs Centennial Challenge program has been very successful at attracting large numbers of competitors from a wide range of participants and NASA has benefited greatly and cost effectively from this program. To date, NASA has paid out roughly $4 million in four of the challenges it has offered. Others have yet to be won. For instance, in the Lunar Lander competition won by Masten Space and Armadillo Aerospace, NASA gained access to lunar landers as test beds saving tremendous development time and money and also helped move forward a reusable sub-orbital rocket vehicle with the potential for future off-the-shelf availability for NASAs needs. In the Regolith Excavation challenge, over 40 robotic solutions were tested for a total cost to NASA of $750,000. The value of just knowing which techniques and technologies do not work was worth far more than that small investment. This challenge was also notable in that a group of students beat out the professionals. The Astronaut Glove competition not only generated significantly improved glove designs for NASA, but has also generated two companies founded by the winning and runner-up teams to pursue commercial opportunities. In this case, Peter Homer the winner was an individual inventor and virtually unknown to NASA. Prizes work. Challenges work. Commercial competition works Prizes work. Challenges work. Commercial competition works. Prizes not only significantly leverage scarce tax dollars, they also greatly expand participation, accelerate innovation and create breakthroughs and affordable solutions that a top down government contracting methodology can never hope to duplicate. Prize awards are also likely to be spread over many years, and some may never be won, yet the benefits will still be generated from the commercial activity they inspire. As for the prize winners, they not only recoup part of their expenditures, they also receive NASAs seal of approval and a very public acknowledgement that their solution was best. The credibility this gives the winning team allows them to more easily raise capital from skeptical investors and more effectively compete for follow-on commercial and government projects. I cannot imagine a more obvious way to win the future than using prizes to unleash the entrepreneurial fervor of American ingenuity.

By Hoyt Davidson Near Earth LLC

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