Michael Bloomberg isn't the only government official enamored of prizes. President Obama is fond of them, too. Early in his presidency, Obama called on government agencies to use prizes to spur innovation. In May, the U.S. General Services Administration announced it had selected the New York City-based start-up ChallengePost to provide an online platform for the government's prize programs.

Whether by offering prize money or by simply providing access to previously walled-off data, federal, state, and local governments are trying to tap into the private sector. This embrace of so-called Government 2.0 is extremely encouraging. The result could be an entrepreneurial wave that transforms the relationship between government and its citizens.

In San Francisco, the shift is clearly under way. Mayor Gavin Newsom is releasing data on subjects as varied as crime statistics and pothole prevalence to the public so entrepreneurs can tap it to create products and services. It's too soon to report any results, but the initial response has been encouraging, says Chris Vein, the city's chief information officer. "We are getting e-mails and calls from people who are using our data to kick-start their new business," he says.

One of the architects of Government 2.0, entrepreneur and Silicon Valley stalwart Tim O'Reilly, compares the current trend to the 1982 decision by Ronald Reagan to open satellite access to the private sector -- a move that spawned the GPS revolution. "The modernization of America's infrastructure for the 21st century will be an electronic and information modernization," O'Reilly says. "And that will drive massive amounts of economic opportunity." The more momentum the federal government and its local counterparts put behind this shift, the quicker America's entrepreneurs can make that potential a reality.

Bottom Line Government entities have more resources -- generally in the form of data -- than officials realize. They need to hand that raw material over to entrepreneurs.