Making eu innovation policies fit for the web def

1

“Light and fast” funding for innovation: Making EU innovation policies fit for the web

David Osimo – Tech4i2 ltd [email protected]

Table of contents

Abstract .................................................................................................................................................. 2 1 Background and methodological approach................................................................. 3 2 The problem: innovation policies failed to reduce the web competitiveness gap ............................................................................................................................................................ 4 3 The reasons: an innovation policy designed for the 20th century...................... 6 4 A new objective, and its challenges.................................................................................. 8 5 Cases................................................................................................................................................. 9

5.1 The Principi Attivi initiative of the Puglia Region........................................... 9 5.2 The Global Security Challenge.................................................................................10 5.3 The US government challenge.gov platform ....................................................13

6 Analysis: why and how ........................................................................................................13

6.1 Design: the key features of light and fast ...........................................................15 6.2 Participation and impact .............................................................................................16

7 Conclusions: yes we can.......................................................................................................16 8 References....................................................................................................................................17

2

Abstract EU Research and innovation policies are designed for investment--‐intensive research and do not fit with the innovation paradigm of the web: this gap is growing by the day. For instance, the emergence of web 2.0 has been notably missed by the roadmap-‐based approach of the EU Framework Programme until it has reached full maturity, and this has certainly not helped the competitive positioning of EU web companies. The future does not look promising: in the context of increased global competition and a dramatic economic, financial and fiscal crisis, simply pouring fresh money into the existing programmes is not a viable option. The paper aims to advance concrete proposals on “innovating innovation policies”. It sets out a taxonomy of features would make R&I programme “fit for the web”, such as: capacity to involve of new actors beyond “the usual suspects”; openness to bottom--‐up innovation; involvement of the users and demand from the early stage; flexibility to accept modifications in project outcomes; shorter time--‐to--‐market and smaller projects; the usage of reputation and networks in the selection process in order to reward excellence. These features are notably absent from traditional R&I programmes. This gap is not new: it is recognized in ex--‐post evaluation of the programmes, and is today accepted also by policy makers. Initial steps have been taken such as the decision to adopt a new integrated framework for Research and Innovation (Horizons 2020). But this decision remains at the level of “declaration of principles”, while the critical issues is the translation into concrete policy choices. We argue that there are today concrete features that are effective in addressing these gaps: these include specifically open and bottom--‐up funding; inducement prizes; reputation--‐based funding; and public procurement of innovation. The paper presents a long--‐list of examples, from Europe and abroad, on policies that match these features. It then analyze in depth three case studies of these policy measures: the Security Challenge (US), NESTA, (UK) and FET--‐Open (EU). Based on these cases, for each instrument, it analyzes the potential benefits and drawbacks, and extracts key lessons learnt. For instance, inducement prizes are found to be a very effective demand--‐driven approach to attract new innovators and overcoming the “usual suspect effect” of current funding framework. Because they reward achievement rather than project--‐writing skills, they are also particularly effective in translating research results into marketable products. There is therefore a growing usage of inducement prizes in the context of open innovation policies, also by the public sector: the US government has in one year managed through its internal platform Challenge.gov about 38 Million dollars worth of prizes. The paper concludes therefore that these are readily actionable options to address the gap of existing innovation policies, that should be urgently adopted within the reform of EU research and innovation policies.

3

1 Background and methodological approach This paper is set in the context of the debate around the forthcoming Horizon 2020 programme, the main European funding instrument for research and innovation. Both the Digital Agenda for Europe (COM(2010) 245) and the Innovation Union (COM(2010) 546) argue that there is a need for a change in the way innovation is funded, as recent evaluations have confirmed that the traditional design of the Framework Programme is unfit to involve the most innovative SMEs. Both initiatives mention the need for “Light and Fast” funding instruments. Light and fast funding instruments are already in use in the private sector: this is the form that seed and venture capital typically takes, through agile selection processes that focus on the project, are incremental in nature and focus on content rather than paperwork. It is also frequently in the non-‐profit sector, in cases such as Omydiar Network1, Digital Pioneers2 in the Netherlands, ant the Open Society Foundation. However, its implementation in the context of government funding for innovation appears far more challenging. This study brings together studies carried out by the author on EU innovation policy, and specifically for the European Commission on Enterprise 2.0 (Osimo 2011); Collaborative e-government (Osimo 2012); Impact assessment of FP8 (Deloitte and Tech4i2 2011); Crossroad research roadmap (Osimo et al 2011) and for IBBT (Osimo 2009). Needless to say, the paper only presents personal position of the author. The questions that this study addresses are therefore:

1. Is it necessary that future EU innovation policy include light and fast funding instruments, and why?

2. Is it feasible to adopt these instruments in the government context? 3. How could they be designed?

The methodology is based on the traditional Policy Impact Assessment approach (EC 2009). At its core lies the notion of explicit causality relations as a transparent mechanism to design effective policies. The paper follows therefore a linear logical reasoning:

1. Definition of the problem and its implications: the incapacity of European innovation policy (and namely FP) to attract innovative players and to stimulate the EU web competitiveness

2. Identification of its causes: the design of the FP is appropriate for capital intensive R&I but at odds with the web innovation paradigm

3. Description of the objective: to design “light and fast” innovation policies that are fit for the web; and the most common objections raised to is implementation

4. Identify through exemplary case studies the design of the programme, in order to describe what are the key features that make innovation policy “fit for the web” - therefore address “the causes” identified above at point 2

1 http://www.omidyar.com/ 2 http://digital-‐pioneer.net/

4

5. Analyse its impact in terms of participation, with particular regard to the involvement of most innovative players; and the impact, with particular regard to the capacity to generate marketable innovation – therefore addressing “the problem” identified above at point 1.

Based on this analysis, and in particular in how it addresses the objections raised in point 3, we provide a set of actionable policy recommendations. The logical model of this analysis is illustrated below. Figure 1: The logical model of the Impact Assessment analysis

The definition of the problem and its causes determine the answer to the first research questions and it is based on desk-based research. The answer to the second research questions derives by the identification of relevant cases studies of light and fast funding instruments in the public sector. The very existence of such programmes in the context of public funding for innovation confirms its feasibility. The more complex third research question is answered through an analysis of the three case studies based on primary research (interviews and grey literature), integrated with desk research on similar case studies. In particular, the case studies are used to identify actionable answers to the most common objections identified in section 4. Each case study is analyzed in terms of description of the design features, participation of innovative players and capacity to bring innovation to market.

2 The problem: innovation policies failed to reduce the web competitiveness gap

The “innovation gap” between Europe and the US in the domain of web-based companies is undisputed. Almost all the most known global web

!"#$%&'()*+#,-./(#-.-0)12-3#4/15#&6#7)'#

899&:/;&9#89#<$=#

>"#?/.-)-+#%8@8A##<$=#A)-8@9#

B"#C'D)1;:)+#48@E2#/9A#6/-2#

F"#G)7#A)-8@9##6)/2.%)-#

H"#I*0/12+##899&:/;:)#0/%;180/92-3##G)7#0%&A.12-#

5

brands, such as Facebook, Google, Foursquare, Twitter, Innocentive and Linkedin, are US-based. While there are plenty of European successful start-upss, they fail to grow and reach critical mass. According to Lindmark (2009), only 14 out of the top 99 web 2.0 companies were based in Europe. At a moment when Facebook just launched a public IPO with an estimated evaluation at 94 billion dollars, it is worth remembering that the single most successful European social networks, Tuenti, sold to Telefonica at a valuation of 75 million Euros.3 The implications of this gap for the European economy are difficult to estimate but likely to be significant. The impact of web industry in terms of GDP and job creation is far from being clearly established. Industry-funded studies from Boston Consulting Group (2011) estimate that the digital economy accounts for more than seven percent of GDP in the UK but the very definition of the “digital economy” is far from being consolidated. In terms of final users, the risk of negative impact appears negligible as European citizens and companies have so far access to similar services than US-based companies and citizens. McKinsey and IAB Europe found European consumers enjoy €100 billion in consumer surplus—almost three times the revenue online advertising companies receive (McKinsey 2010). More worrying it the medium-term gap in terms of innovation spillover effects (Nadiri 1993). Web-based services’ competitive advantage lie the personal data they collect. Personal data are increasingly seen as key strategic assets for companies and regions: in the words of WEF (2011) “personal data will be the new “oil”. Because of the lack of web companies in the EU, the personal data of the European citizens are now largely owned by US companies, which then resell them as value added services to European companies for example for advertising purposes. The European gap in web competitiveness is therefore considerable, and it is likely to have negative socio-economic implication both directly and indirectly. While this problem has long been recognized, existing policy instruments, and namely the Framework Programmes, have so far been unsuccessful in overcoming it. In particular, two shortcomings of the Framework Programme that have been particularly hard to address are:

-‐ with regard to participation, the involvement of innovative SMEs -‐ with regard to impact, the lack of capacity to translate research results

into marketable products These are problems that are transversal to all priorities of the Framework Programme, but particularly relevant for the specific context of web industries. On the latter problem, with regard to web-based services, the most important web innovations of the last years have been noticeable for their absence in the Framework Programme, such as social networking. There is almost no

3 http://www.expansion.com/2010/08/03/empresas/tmt/1280869139.html

6

evidence of successful web start-ups born out of the research carried out in FP, and most of the projects remain far from market deployment (Arnold 2011). On the former, innovative start-ups shy away from the Framework Programme: the ex post evaluation of the Framework Programme demonstrate that “there are major barriers to involve the most innovative and growth oriented SMEs”: only 5% of the SMEs holding highly cited patents participate in the Framework Programme (Aho et al. 2008). The FP has a strong “usual suspects” effect were the same companies tend to participate, based on their expertise to navigate the daze of EU funding. (Arnold 2011): “Framework Programme contains limited countervailing activity that would stimulate disequilibrating, disruptive technologies and innovations that can unseat the established players and unleash the development of new industries”. This is typically of any complex funding instruments: they typically tend to attract the “money grabbers” (Cottica 2009 and Prieto Martin 2011) rather than the real innovators.

3 The reasons: an innovation policy designed for the 20th century

Traditionally, the most recognized reasons for this non-participation is the complexity of administrative procedures behind FP funding, which make “compliance difficult for any organisation that lacks specialised personnel to deal with the problems” (Arnold 2010). We take a more general perspective, and argue that the main reason behind this lack of participation is that the design of the main EU innovation policy instruments, the Framework Programme on Research and Innovation, is simply not appropriate for web innovation. The Framework Programme was designed in the 1980s to foster innovation in hardware and telecommunications, and partially for packaged software. The programme is designed, and effective, for capital-intensive innovation, with long and predictably innovation cycle (such as Moore Law). Semiconductors, nanotechnologies and other enabling technologies need stable, large-scale investment that allows existing companies to increase their competitiveness through innovation. The nature of innovation in the ICT sector has changed radically in the last years. The Ghent Manifesto spells out the key challenges and requirements of a renewed innovation funding: truly multidisciplinary, demand-driven, market oriented and agile. (Ghent Manifesto 2009) The simple comparison of the design of a typical FP7 STREP project in applied software research and the product release cycle of a web start-up illustrate this difference. A typical FP7 STREP (Specific Targeted Research Projects) has a budget of around 3 million Euros, spread between 5/6 partners from different countries. The project is conceived after the call for proposal comes out, which typically leaves about 6 months before the final submission, and further 8 months for evaluation and administrative formalities before the projects kicks off. The duration of STREP is typically 36 months, which makes about 50 months between conception and delivery. If you take into account that the actual call for proposal indicating the specific research areas to be addressed, takes about 6 months of preparation, one can easily calculate that the time-to-

7

market from the identification of the research problem to the final delivery is about 5 years, and any change of scope in the process has to be justified, authorised and fully documented. To put this in perspective, five years ago Twitter was just being launched: the problems identified in any work programme are unlikely to be relevant after such a period of time. The most important web innovation cycle range between a few days to a few months, are led by a very small team with constant iteration, is designed to address emerging needs in an agile and bootstrapped way. Decisions and modification are taken on a daily basis and after the service is launched. Table 1: Differences between typical STREP projects and typical web innovation

Typical FP7 STREP project

Typical web new product or service

Budget 3 Million Euros Below 100.000 Euros Team 5/6 partners (large

companies, SMEs, university professors, consultancies) – usual suspects

Start-ups or small informal group, often by drop-off students - outsiders

Time-to-market 4/5 years (6 month call preparation, 6 month project writing, 8 months evaluation, 36 months project duration)

3 months

Main presentation vehicle

60 pages project 2 minutes elevator pitch

Approach Technology roadmap based

Demand-pull and user-driven

Disciplines Computer science, engineering

Integration with design, marketing, business

Management Linear and engineered Emergent and agile Type of innovation Technological Business model

innovation Users involvement 22 months after start From month 1 Distribution of innovation

90% before public release, then minor adjustment

90% after first beta release

Failure Exceptional and to be avoided

Normal and fast

Changes Exceptional, through formal authorisation which lasts weeks

Normal and daily

Selection process Mostly ex ante, based on assessment “on paper”

Mostly ex post, based on results

8

4 A new objective, and its challenges However blunt the statement might look, its core message is far from new, and it is widely recognized in policy debate. The ISTAG advisory group calls for the EC to “Enlarge the stakeholder community as new, non-conventional actors become increasingly important […] Create open fast-track schemes for innovation detection, amplification, and acceleration”(ISTAG 2010). The Digital Agenda action 52 proposes SME-‐targeted activities including open schemes from 2013. However these general objectives has not (yet) been translated in concrete requirements. The proposed measures within Horizons 2020, as described in the most recent proposal (COM 2011/808) are incremental modification to the existing framework, basically in the direction of administrative simplification and dedicated funding for SMEs, and they no longer mention terms such as “light” “open” and “fast” instruments. We argue that there is certainly a welcome progress a bolder, more disruptive approach is needed. The problem analysis highlighted in the previous section call for a radical re-design of the funding programme, at least for what concerns applied research. We posit that this design of the funding programme makes it impossible to achieve any significant web innovation, and that especially in times of budgetary restrictions the alternative is to introduce radically new instruments or to cut the research and innovation budget on applied web-related research altogether. In particular, the capacity for reaching outside the usual suspects should the key priority of Research and Innovation policy on ICT, where most of the innovations come from new players. The reasons behind this lack of progress in this area are to be found not only in traditional institutional stickiness and resistance to change, but also in sensible objections:

1. Light and fast instruments are not allowed by financial regulations:

accountability, control and audit systems make it unfeasible to carry out

2. They are much more labour intensive for the funding agency: managing small and open-ended projects requires a deeper level of engagement by the agency

3. They lack a critical mass to generate disruptive innovation on the market

4. They lack rationale for EU-level intervention since they are most effective at regional/local level: one of the key arguments for EU-level intervention according to the Impact Assessment methodology is the need for adequate critical mass and financial resources. Therefore, small funding is expected to be more local, as if there is a correlation between the amount of the funding of the single project and the geographical coverage of the funding institution

In the rest of this paper, we analyse three cases of funding instruments actually implemented in the public sector.

9

We thereby outline the main features of these innovation-funding measures, and analyze case studies of “light and fast” funding programmes. We will address the design of these programme (also with reference to the two objections spelled out above), and their results in addressing the objectives of the research and innovation policy.

5 Cases We selected and analysed the following cases:

1. The Principi Attivi initiative of the Puglia Region (IT) 2. The Global Security Challenge (UK) 3. US government Challenge.gov service (US)

The cases were not selected because they are dedicated to web innovation, but rather because of their “light and fast” nature. The first is a kind of “small and simple” funding instruments, while the second and the third pertain to the specific category of “inducement prizes”. On each case, we carried out interviews with the main official in charge of the initiative, integrated by desk research. To provide additional insight, we also considered evidence on other research programmes such as FET-OPEN (EC), NESTA (UK), European Research Council (EU), SBRI (UK) and the IBBT innovation-funding model (BE).4

5.1 The Principi Attivi initiative of the Puglia Region The Puglia Region is a Convergence Region in the South of Italy. The objective of the regional government was to activate the innovation capacity of young people in their region, discouraged by the bleak employment possibilities. Also existing funding such as the Structural Funds tended to “play safe” by requesting in-depth knowledge of the rules and economic soundness of the proposal. Therefore, the funds favoured established players rather than innovators with genuine new ideas. Taking into account these factors, the Puglia Region Government launched and managed in-house a €10MLN call for proposals for micro-projects (up to €25.000) mirroring the thematic areas of the Structural Funds programming:

-‐ Environment and local development -‐ Innovation -‐ Active citizenship and inclusion

The distinctiveness of this call was in its design:

-‐ Restricted to informal groups of young people could participate (at least two people below 32)

4 A full list of “light and fast” innovation plicy instruments is provided at http://www.diigo.com/user/osimod/innovationpolicy20

10

-‐ Very open, non prescriptive definition of the priorities -‐ Simple application process (max. 13 pages form) -‐ Open, peer-to-peer helpdesk that enabled the horizontal networking of

participants -‐ Transparent discussion of the selection results

And the results were impressive. 420 projects (involving 1279 young people) were funded out of 1500 proposals. Only 5% of proposals did not reach their goals but more than half changed their objectives throughout the process. About 2000 deliverables (products, services, events) were produced. It comprised a web fiction in 12 episodes, maps in Braille language, patents for photovoltaic products, reviving computers for non-profit associations. The variety of services is staggering and reveals the extent to which the initiative has been able to activate the creativity and participation of citizens. In terms of additionality, 73% of participants would not have implemented the project without the funding. What is more, 80% of the projects are still active three years after the call has ended. The simplicity, openness and extensive follow-up of the projects were the secrets of the success. This follow-up was guaranteed by four dedicated staff members, but could only be implemented thanks to the extensive usage of web tools that enabled the peer-to-peer networking of participants. The internal forum had 8000 users who created 11000 messages and viewed 450K of pages. The forum received 86% satisfaction rate by participants, second only to the direct assistance of the staff (94%). When asked if such an initiative could scale up at EU level, the interviewee answered “Who knows? The only way is trying!”, a sentence which shows the necessary attitude for such a programme to work. The team running the programme received a strong “licence to experiment” by its management and were free to try new solutions outside the comfort zone. It is also worth noting that the initiative has not been funded by the Structural Funds that proved too rigid and cumbersome for such an agile programme.

5.2 The Global Security Challenge In the last years, mostly in the US, there has been an increasing usage of prizes, rather than grants. Companies and governments have set up “challenges”, where the financial reward goes not to the best proposals, but to the innovators who come up with the best working solutions. Examples are the DARPA challenge (http://www.darpa.mil/grandchallenge/index.asp ) for the self-driving car, or the recent Australian prize for the best algorithm to identify patient at risk (http://www.heritagehealthprize.com ). More recently, we have seen an explosion of “apps contest”, born out of the first Appsfordemocracy.org initiative, where developers compete for prizes by building web and smartphone apps that help solving specific problems. Inducement prizes are a very old way to fund innovation: indeed they were used largely in the 18th and 19th century to promote inventions (McKinsey 2009). They were particularly suitable at that time where inventions were carried out by amateurs, such as the famous “Longitude prize” which saw a clock-maker winning the prize at the expenses of the established astronomers

11

(Sobel 2005). The professionalization and specialization of science raised the cost of research and therefore reduced the scope for using such tools. Not all prizes are inducement prizes: indeed, the majority falls under the category of “recognition” prizes that reward past achievements. Inducement prizes instead call for new solutions to existing problems. One of the modern, high profile inducement prizes is funded by the “Technical Support Working Group”. TSWG operates as a program element under the Combating Terrorism Technical Support Office (CTTSO). It funds defence-related research through a system of grants, organised in multi-stage selection. The TSWG co-funds the Global Security Challenge, organised by OmniCompete. Now in its 6th year, the 2011 Global Security Challenge looks for new technologies and innovations within the security sector. This year there are two categories, one for start-ups (embryonic companies, concept projects or university research projects) and one for SMEs. Prize grants totalling $500,000 USD are available to the winners. The submission form is easy to complete with less than 20 questions that can be answered in one session. The programme is characterized as a prize, with an open and simple application, which rewards results not proposals. Cost for participation is small: it is free, and forms are simple and take ½ hours to complete. Generally, prizes are a minor part of the total funding of the agency. In the case of the Security Challenge, about 1% of the budget is devoted to it. Typically, a challenge includes substantial investment beside the prize itself. Designing a challenge, organising it, evaluating proposals and ensuring widespread awareness requires significant investment. According to the interviewees, non-prize costs can range from 20% to 150% of the actual reward that is linked to inducement prizes. The programme is implemented by private company (based in UK) on behalf of 3 agencies: Technical Support Working Group, Office of Naval Research, BAE Systems which pool resources to generate greater attraction power. The programme is fully complementary to existing grant measures. The prize is designed to reach out to a wider variety of suppliers, beyond the “usual suspects” which are involved in traditional grant programmes organized by TSWG. It is also designed as an intelligence programme to monitor security products and markets. The key to attract participants is not the money, but the visibility towards Venture Capitalists and potential customers, as TSWG acts on behalf of final clients in government. The program is therefore strongly demand-driven. Jury is composed of government, industry, VCs and academia. The high profile of the jury is crucial in ensuring the quality of winners, and in attracting participants. SMEs and innovative start-ups only are allowed to participate. 20% are university spin-offs. The incentive to participate is provided by the final presentation to large number of high level buyers attracts participation

12

Hundreds of attractive start-ups from all over the world participated because of the visibility: according to ComputerWeekly.com , “You have to attend the Global Security Challenge to discover really innovative developments.”5 The participation is diverse and global in nature. On average, 42% of applications originate from universities, 12% from corporate spin-outs, 29% from unaffiliated entrepreneurs and 17% from other sources. Geographically, the split of entries was 23% from Asia, 44% from Europe and 33% from the Americas. In terms of impact, the main advantage is in reaching out to large amount of innovative ideas for security, and in generating visibility for these companies. Several products have then been bought by the final customers. GSC is effective precisely in translating research into market, as they open up market opportunities for new products. Secondly, they are designed only for SMEs and start-ups. Top contenders from previous competitions have subsequently raised over $80 million in new capital. For example:

• The Global Security Challenge winner in 2007 was NoblePeak Vision from Massachusetts, which has developed breakthrough night vision surveillance camera cores and components. They raised $12 million in a subsequent funding round, led by Chart Venture Partners of New York. "Customer interest in our night vision technology soared from the publicity we received after winning the 2007 Global Security Challenge" said Cliff King, NoblePeak's Founder and COO. "As a direct result we are now developing new camera systems with major OEM's for market launch in 2009."

• The Global Security Challenge winner in 2006 was Ingenia Technology, a UK start-up that developed a novel laser technology to authenticate documents and products. Ingenia received a significant contract from a US Federal Law Enforcement agency and launched a partnership with Bayer AG in Germany. Mark McGlade, Director of Business Development said: "Ingenia Technology experienced a phenomenal year since winning the first Global Security Challenge in 2006."

The results are highly promising precisely to address the three issues listed above: these competitions are able to attract the best innovators, even those traditionally not engaged with government funding. They reward concrete results, not proposals. They don’t require complex control systems. They are able to attract a far superior number of high-quality results than traditional grant systems. (McKinsey 2010, Stallbaumer 2004) The key advantage lies in the open approach, which fosters diverse participation and serendipitous innovation. There's no need to select in advance from a pool of prospective participants who's the most likely to produce the desired result. Instead, the competitors determine for themselves whether they believe they can meet the terms of the prize. As a result, unconventional solutions, which are often shunned because they are deemed too risky, are allowed to compete equally against less innovative approaches.

5 http://www.computerweekly.com/blogs/david_lacey/2011/02/reflections_on_rsa_2011.html

13

5.3 The US government challenge.gov platform In the framework of the renewed innovation policy under the Obama administration, the US government has created a dedicated platform, called www.challenge.gov, to enable the organisation of competition by any government, and has promulgated the America Competes Act to simplify and streamline the organisation of challenges by government. Government agencies can post “challenges” that can be met by any citizens. The now very promoted apps contests neatly fit in but other challenges can also be found, such as NASA competition for writing “algorithm to fly three small SPHERES satellites around the cabin of the International Space Station”. Challenge.gov is one year old so it seems to be perfect timing for looking back at its achievements.

-‐ Technology costs are zero, the platform has been offered by a tech provider (under a no cost contract), two people are working on it (mainly on training and awareness)

-‐ All federal agencies but two have used the platform to launch prizes -‐ So far 38 million dollars in prizes have been distributed, including a 18

million dollars prize for Solid State Lighting

Inducement prizes are an effective instrument for crowdsourcing and collaborative problem solving. Not only “apps contest” but also any kind of socio-economic challenge can be addressed through prizes. Europe is not taking full advantage of this opportunity. The America Competes Act and Challenge.gov initiative in the US are worth considering in order to clarify how to organize prizes and enable public administrations to use this tool.

6 Analysis: why and how In this section we build on the case studies to elicitate the key features of “light and fast” funding instruments. We then analyze to what extent they are successful in achieving the objectives; and we finally answer the most common objection. Based on the findings above, we can already positively answer the second research questions: light and fast funding instruments can be implemented also in the context of government funding. In particular, we address the most common objections mentioned in section 4 and see how they could be overcome. Objection 1: they are not allowed by financial regulations: accountability, control and audit systems make it unfeasible to carry out This is certainly a well-founded objection. We’ve seen from the cases that existing regulation hinder the uptake of alternative funding mechanisms. For instance, Principi Attivi was not funded using Structural Funds because of the legal uncertainty around its eligibility. In the US, before the America Competes Act, only NASA was allowed to use inducement prizes to fund innovation. The existing examples show possible solutions: Principi Attivi bypassed the problem by avoiding European Structural Funds money, despite being a convergence region, and chose to fund the intervention with national funding. The US Challenge.gov platform was created following a

14

reform of the regulation on prizes. The America Competes Act states that “Each head of an agency, or the heads of multiple agencies in cooperation, may carry out a program to award prizes competitively to stimulate innovation that has the potential to advance the mission of the respective agency.” (Senate, 2010. America Competes Act). “Light and fast” instruments therefore call for regulatory intervention or at least regulatory clarifications and guidelines that would help convincing administrators of the legitimacy of the acts. Objection 2: they are much more labour intensive for the funding agency The case studies partially confirm this objection. Principi Attivi managed 10 Million Euros funding with 4 full time staff (2,5 M Euros per employee). This is above the typical ratio for FP project. Interviews with EC officials in charge of FET-OPEN and of IBBT confirm the resource-intensity of open-ended projects. All project officers confirmed the need for continuous, in depth interaction with project managers in order to fine-tune the ideas, but also underlined how this additional cost was highly beneficial for both the research team and the funding agency: a hands-on approach which reminds us of the arrangements between venture capitalists and start-ups. Furthermore, innovative solutions for monitoring and support have been developed: the Principi Attivi initiative was able to complement this monitoring and support service through a peer-to-peer approach through dedicated online forums, which were considered by participants as useful as the official support services (Principi Attivi 2011). Finally, inducement prizes have a very reduced need for monitoring as they reward the final product, rather than the project proposal. Objections n. 3: they lack a sufficient critical mass to generate disruptive innovation on the market This objection does not appear to be confirmed by the cases. High-profile innovative companies were featured for example in the Security challenge and went on to successful market deployment. In Principi Attivi, a project led to patents for photovoltaic innovation. But more importantly, this objection is dismissed based on the web innovation model itself, which requires low capital investment and low barriers to entry. The most disruptive web innovation such as Google, Facebook and Twitter were deployed with very little initial investment (Kiskis, 2011). Objections n.4: small funding lacks a rationale for EU-level intervention since they are most effective at regional or local level. One of the key arguments for EU-level intervention according to the Impact Assessment methodology is the need for adequate critical mass and financial resources that would not be available at national or local level. Therefore, small funding is expected to be more local, as if there was a correlation between the amount of the funding of the single project and the geographical coverage of the funding institution. Based on the case studies, we argue that this association is not necessarily true. Inducement prizes such as Challenge.gov show that global and federal (in the US sense) geographical coverage is meaningful and effective also for relatively small amounts of funding. The wide geographical scope is needed to raise the quality of the proposals, their visibility and the knowledge flows, not only because of the size of the investment.

15

6.1 Design: the key features of light and fast Based on the problem analysis in table 1, we present below the key features of an innovation funding system “fit for the web”. For each feature, we point to already existing examples. Small funding The advantage of offering small grants is in their capacity to reach for high number of participants: by definition small size grants mobilize a much larger target population than large grants. A grant of 25.000 Euros in many cases is sufficient to get innovative web initiatives off the ground, while further round of funding can be assigned at a later stage. Because of their smaller size, their social benefits are not limited to the projects funded, but represented by the much larger pool of applicants induced to generate innovation projects. The overall cost of the small funding programme represents a minor percentage of the overall agency spending: 1% for TWSC and the 10 Millions Euros allocated to the Principi Attivi initiative in the Puglia region are negligible when compared to overall Structural Funds investment in the region. Short project time The activities supported have to be completed in a relatively short period of time, e.g. only the expenditure incurred within the 12 months following the date the benefit is awarded. In the case of web applications contests, such as appsfordemocracy.org, usually 2 months are given for developing the application. Open, non-prescriptive and flexible The programmes do set only loosely defined research domains, often based on general research direction or on solving specific challenges. While this approach is traditional in basic research, it can and should be used for applied research and innovation. This helps not to limit the number of potential beneficiaries by defining target industries or expected forms of innovation, thereby opening up to unpredictable outcomes; embracing this principle means not assuming that the public (state or agency) knows better what will be the origin of future innovation: the Security Challenge only calls for innovative products that enhance security. Furthermore, such programmes accept changes in the course of the project as normal, so that unexpected outcomes and serendipitous innovation are encouraged: in the case of Principi Attivi, the majority of projects changed their goals in the course of the project. Multi – stage funding The “light and fast” funding is often just a first step, complementary to mainstream innovation funding: most of these initiatives manage to attract subsequent rounds of funding through venture capital, public procurement (such as in the case of the Security Challenge) and mainstream public funding (as in the case of Principi Attivi. The initial funding is small and not selective, while based on the results additional, larger funding is assigned. This limits the risks and favours ex-post selection of results, rather than ex-ante evaluation by experts and gatekeepers, thereby lowering the risk for both the applicant and the funder. Furthermore, because of the low initial selectivity, unusual solutions are more likely to be funded.

16

While not explored in the context of these cases, we also identify additional features to be further explored such as the enhanced multidisciplinarity, and transparent and peer-based evaluation process, and the usage of reputation in the selection process.

6.2 Participation and impact In terms of participation, the cases have a strong capacity to attract real innovators, as the submission process is highly simplified with short project proposals. Principi Attivi attracts participants that are typically not recipients of Structural Funds and would not have been able to implement their initiative without the funding, while the participants of the Global Security Challenge are innovative SMEs not involved in mainstream research funding, such as Ingenia Technology (UK). Challenge.gov hosts challenges that are participated by individual citizens and informal groups, and in particular the “apps contest” are able to attract individual developers that are otherwise not interested in participating to traditional research project. The impact of these innovation programmes in terms of generating sustainable market opportunities is equally impressive. Out of the 420 projects funded by Principi Attivi, only 5% of proposals did not reach their goals and 80% of the projects are still active three years after the funding has ended. In the case of the GSC, top contenders from competitions have subsequently raised over $80 million in new capital, and to attract large-scale purchase of innovative products.

7 Conclusions: yes we can The analysis has covered each of the three research questions. With regard to the first one, we demonstrated that new funding instruments are urgent and necessary for European web companies to participate in research programmes and deliver disruptive innovation on the market. European web companies are not competitive and the current FP7 is ineffective to bridge this gap because it is ill designed for web innovation. With regard to the second one, light and fast funding instruments are applicable in the government context, not only in the private and non-profit sectors. There are examples that show this feasibility. With regard to the third one, we analyzed the key features of such programmes. However, in order to answer all objections, light and fast funding instruments require some institutional interventions:

-‐ in terms of regulatory change, to issue regulatory clarification on how small funding and inducement prizes could be used within the existing financial regulations, with the possibility to introduce new regulations to simplify the organisation of such measures

-‐ in terms of cultural and management change, to speed up the move towards ex-post evaluation of results, rather than ex-ante control over process

This shows that “light and fast” funding instruments are not just a generic goal for the future, but a feasible option for today. They offer tangible opportunities to address some of the key challenges of European funding: the

17

capacity to reach out to new innovators, and the likelihood to turn research initiatives in marketable products. Countries such as the US and the UK have increased their investment in inducement prizes, and have established competence centre such as the newly founded NASA “Centre of Excellence in Collaborative Innovation” and NESTA “Centre for Innovation Prizes”. In times of tight budgetary restrictions, and after to many evaluation of FP ICT project highlighting its limits, it becomes urgent to give an honest look at the effectiveness of the current spending approach and make sure that the funding goes to the real innovators rather than expert project writers (Osimo et al 2011). In the recent “Digital Single Market” conference, Esko Aho, author of the ex-post evaluation of FP6 IST, stated that “if Framework Programme is the way EC is going finance innovation, we don't have hope”. The cost/benefit ratio of “light and fast” instruments versus traditional instruments cannot be ignored. In view of this discussion, we recommend the following policy actions: 1. the integration of inducement prizes in Horizons 2020, with a 1% funding for each applied research priority to be distributed as prize 2. the re-orientation of prescriptive research work programmes into open and challenge-driven funding model, not rigidly divided between priorities 3. the launch of a peer-to-peer support network for project proposals to be used also in the monitoring and evaluation of on-going projects 4. the institution of a small projects assignment for each funding priorities, with maximum funding of 25000 Euros, small partnership, also for informal groups and simplified submission and evaluation mechanisms. 5. The move towards a stronger ex-post evaluation of projects and of administrators, even after 5 years of the finish, with results of the evaluation being publicly available and being used to future evaluation of both project officers and project proposals. This paper aimed to demonstrates that a radical change in the way innovation is funded in Europe is necessary and urgent: the combination of the re-design of Horizons 2020 and of the financial crisis make this moment unique. And it provides concrete, actionable and low-cost policy actions. In our opinion, Europe would be better off by simply cutting the funding of web-related FP projects than by maintaining the current system.

8 References Aho, E., 2008. Information Society Research and Innovation: Delivering results with

sustained impact. Final Evaluation FP6 ICT, Arnold, E., 2010. Catalysing European Competitiveness in a Globalising World:

Panel Report of FP7-ICT Interim Evaluation, BCG, 2010. Report The Connected Kingdom, Cottica, A. & Bianchi, T., 2010. Harnessing the unexpected  : a public

administration interacts with creatives on the web. Journal of ePractice, (March), p.1-9.

Deloitte & Tech4i2, 2011. Ex ante evaluation and impact assessment FP8 ICT. EC, 2009. IMPACT ASSESSMENT GUIDELINES, European Commission. EC, 2010. A Digital Agenda for Europe, European Commission. EC, 2010. EU2020 flagship - Innovation Union, European Commission.

18

ISTAG, 2011. Orientations for EU ICT R & D & Innovation beyond 2013 , (July).

Lindmark, S., 2009. Web 2.0  : Where does Europe stand? JRC IPTS reports EUR 23969

McKinsey, 2010. Consumers driving the digital uptake: the economic value of online advertising-based services for consumers.

McKinsey, 2009. And the Winner is. Mindaugas Kiškis, ENTREPRENEURSHIP IN CYBERSPACE  : WHAT DO

WE KNOW  ? Nadiri, I., 1993, “Innovations and Technological Spillovers”, NBER Working

Papers, No 4423. Osimo, D., 2009. ICT Innovation in Flanders  : Research with Impact, Osimo, D. et al., 2010. The CROSSROAD Roadmap on ICT for Governance and

Policy Modeling, Available at: http://crossroad.epu.ntua.gr/files/2010/02/CROSSROAD_D4.3_Final_Roadmap_Report-v1.00.pdf.

Osimo, D. et al., 2010. Enterprise 2.0 final report, Osimo, D. et al., 2010. STUDY ON COLLABORATIVE PRODUCTION IN

EGOVERNMENT SMART 2010-0075 FINAL REPORT, Perrin, B., 2001. How to — and How Not to — Evaluate Innovation. Available

at: http://www.mande.co.uk/docs/perrin.htm. Prieto-Martín, P., Marcos, L.D. & Martínez, J.J., 2011. The e- ( R ) evolution

will not be funded. RegionePuglia, 2011. Principi attivi, 3 anni dopo, Final evaluation report. Senate, 2010. America Competes Act, Senate. Sobel, D., 2005. Longitude: The True Story of a Lone Genius Who Solved the

Greatest Scientific Problem of His Time, Penguin. WEF, 2011. Personal Data  : The Emergence of a New Asset Class.