All for the Money? The Limits of Monetary Rewards in Innovation Contests with Users

Abstract

Practitioners increasingly use innovation contests to harness the knowledge of external crowds for internal innovation purposes in exchange for prize money. While some innovation contests have the objective to attract professional experts from distant fields to obtain technical solutions, other innovation contests primarily target customers or users in order to generate new product and service ideas. Hence, external crowds differ substantially across, but also within, innovation contests in terms of personal needs in the innovation domain. Drawing upon the private-collective model of innovation, we argue that participants’ ``userness’’ in terms of personal needs gives rise to non-monetary reward expectations and collectively oriented participation as opposed to the private pursuit of monetary rewards emphasised in innovation contests. Hence, the effectiveness of monetary rewards in innovation contests is bound to certain participants and behaviours. In particular, participants weigh non-monetary rewards more strongly against monetary rewards (1) when their personal need in the innovation domain is high, and (2) when choosing to engage collectively in evaluating and commenting on other contributions as opposed to submitting own contributions. We find support for these hypotheses in an empirical study where user participation in a real innovation contest is regressed on survey-based measures of expected rewards that users perceive prior to the contest. The observed effect sizes of the proposed shifts from monetary to non-monetary rewards are so pronounced that for a given level of personal need and a given type of participation behaviour only either reward type is effective and a compensational relation between both types of rewards does not exist. Monetary rewards are even detrimental and lower user participation if the two proposed boundary conditions are taken together.