We recently pointed to an article discussing the increasing role of prizes in the private sector. VCs are interested in them as a way of spurring innovation in a particular area, while companies are using them to get the general public to help solve specific problems. The latest to try this model is Microsoft, which will announce a $10,000 prize for the best videogame made using a particular suite of development tools, called XNA. Critics of private-sector prizes argue that the prize system is not a market mechanism, and so there's no reason to think that the prize winner will actually have developed something of value. But that criticism misses the point with this example. Developing a popular game is just a small part of Microsoft's goal with this prize. The larger goal is to get developers to use its XNA tools to start making games. If they can get several to try, the $10,000 they spend on the effort will be well worth it, even if the actual game that wins never goes anywhere.
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