Going for the Gold

I've seen the book, Wikinomics, siting on the bookstore shelf and have been meaning to check it out. Here is an interesting article by the authors of the book on the power of using prizes to spur innovation:

A few years back, Toronto-based gold mining company Goldcorp (GG) was in trouble. Besieged by strikes, lingering debts, and an exceedingly high cost of production, the company had terminated mining operations. Conditions in the marketplace were hardly favorable. The gold market was contracting, and most analysts assumed that the company's fifty-year old mine in Red Lake, Ontario, was dying. Without evidence of substantial new gold deposits, Goldcorp was likely to fold.

Chief Executive Officer Rob McEwen needed a miracle. Frustrated that his in-house geologists couldn't reliably estimate the value and location of the gold on his property, McEwen did something unheard of in his industry: He published his geological data on the Web for all to see and challenged the world to do the prospecting. The "Goldcorp Challenge" made a total of $575,000 in prize money available to participants who submitted the best methods and estimates.

Every scrap of information (some 400 megabytes worth) about the 55,000 acre property was revealed on Goldcorp's Web site. News of the contest spread quickly around the Internet and more than 1,000 virtual prospectors from 50 countries got busy crunching the data.

Within weeks, submissions from around the world were flooding into Goldcorp headquarters. There were entries from graduate students, management consultants, mathematicians, military officers, and a virtual army of geologists. "We had applied math, advanced physics, intelligent systems, computer graphics, and organic solutions to inorganic problems. There were capabilities I had never seen before in the industry," says McEwen. "When I saw the computer graphics, I almost fell out of my chair."

The contestants identified 110 targets on the Red Lake property, more than 80% of which yielded substantial quantities of gold. In fact, since the challenge was initiated, an astounding 8 million ounces of gold have been found—worth well over $3 billion. Not a bad return on a half million dollar investment.

This is an incredible success story. I wonder how many others are out there? Is this an isolated example or something that could be replicated across many other industries? I'm intrigued by the idea of prizes as a means of incentivizing entrepreneurship. I hope to see more companies adopting this type of strategy.

See my previous posts on prizes here and here.

In related news, Anousheh Ansari, one of the sponsors of the X-Prize, GMU alumni, and first female space tourist will be speaking at GMU on February 20th at 2 PM. See more details here (PDF).

(HT Alex Tabarrok)