Hackathon prize money keeps rising each year as organizations learn to take advantage of their value. Runner-up cash prizes are now in the thousands, and grand-prize payouts are as high as $1 million.

There have been stirrings in the world of innovation in the software development community. A new law was created one year ago, affording new opportunities for rapid, competitive software prototyping.

As the gospel of Silicon Valley-style disruption spreads to every sector in the economy, so too have the industry’s favorite competitive ritual, hackathons. The contests, where small teams of “hackers ...