UPDATE: Only a few months in, the contest has led to a 5% improvement - half-way to the $1 million prize for a 10% improvement. 743 teams have joined the contest so far. Not a bad R&D department!
Way back in April I wrote about an increasing trend where companies and organizations outsource or encourage innovation by offering up a prize for a winning solution. The best recent example is the Ansari X-Prize, which was a $10 million prize for the first private spacecraft to launch a man into space twice in two weeks (won by Burt Rutan). Now, Netflix is taking the model in its search for a better movie recommendation engine.
Netflix is offering $1 million to the inventor of software to upgrade its Cinematch recommendation engine. The current engine does a decent job of matching movies based on the likes and dislikes of each individual member using comparisons across its membership. However, Netflix wants to take it to the next level.
There are several Challenge Dividend dynamics at work here:
- There is a "bar" - a 10% improvement in results.
- There is an incentive, a $1 million prize for the first 10% improvement; and there are annual $50,000 prizes for the best result of the year (to keep people plugging away).
- The contest is open to anyone, not just internal R&D at Netflix, Inc.
- The results are openly visible, so contestants get immediate feedback on where they stand and how much better they must be to win.
I love the fact that this challenge is also completely consistent with Netflix's business model and core challenges in the marketplace. The company is fighting against big players like Walmart as well as improving movie-on-demand cable systems. It is a small company without the R&D resources of a Google or Microsoft. And it knows that if it can recommend better movies, its consumers will be happier (frankly, the biggest issue for Netflix is that once you see all the movies on your list, there's little reason to keep paying $20/month). I would expect that Netflix can see in real time that each 1% improvement in Cinematch results in $X improvement in sales and Y% increase in loyalty.
At worst case, and as some commenters at digg.com suggested, this may be just a great way to build marketing hype around the Cinematch service!
Notes:
- Thanks to Gary Stein and the MIT Ad Lab for pointing this out.
- Anousheh Ansari, whose family created the Ansari X-Prize, recently became the first Muslim woman astronaut by buying her way onto a Russian flight.
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