Monday, June 29, 2009

Netflix, prize economics and awarding innovation

I have to give Netflix a lot of credit. They do a good job of keeping a customer happy.

For example, on Friday night I discovered one of the DVD's they sent me was damaged. I reported it, but because of the timing, they couldn't send a replacement in time for the weekend. Yet when I checked my queue, two of the movies in it were ready for streaming under instant play. This is, of course, in addition to all the movies already available to stream.

So when I read in the NY Times about how Netflix is using prize economics to find ways to improve their business, I wasn't surprised. It seems that they're running a contest with a million dollar prize awarded to "the first contestant that could improve the predictions by at least 10 percent" of the movies they recommend to customers. After three years and more than 50,000 contestants,

[o]n Friday, a coalition of four teams calling itself
BellKor’s Pragmatic Chaos — made up of statisticians, machine learning experts and computer engineers from America, Austria, Canada and Israel — declared that it has produced a program that improves the accuracy of the predictions by 10.05 percent. Under the rules of the contest, Netflix said that other contestants now have 30 days to try to do even better. If they cannot, BellKor’s Pragmatic Chaos will collect the $1 million.

Prize economics, according to the article, is a less expensive way to develop an innovation than in-house r&d. And that, of course, is a good thing for customers because it keeps prices down, while providing better services (in this case, improved movie recommendations).

I'll bet this same idea could be applied to some of the issues facing our government, like areas of health care reform. Imagine if this kind of innovative thinking and open ended approach toward improvement was applied to those areas where health care is costing consumers and insurers the most money. Perhaps those approaching the problem with a prize in mind would come up with innovations that might surprise Congress and the president. I'd be willing to bet that many Americans wouldn't mind awarding that kind of innovative thinking if it led to lowered costs and improved services.

Not that we can compare renting movies to health care - but, then again, in some aspects we can. Because there's no doubt from the discussions I'm hearing on health care that it's become a business in this country. The sooner everyone admits that, the faster we can get to solutions. Because the political discussions about health care aren't working - frequent allusions to party lines and repetitive, old arguments.

Prize economics and awarding innovative thinking. Gotta love corporate America. It's worth a try. Pass me one of those new wheelchair cushions for six hundred bucks - oh wait, let me buy half of one.

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