Step 1: Invite hundreds of hackers to use and abuse your web-based services APIs. Entice hackers to produce with slick prizes: 32" LCD TV from Sharp, iPods, etc.
Step 2: Have the very people who wrote those APIs on-site and available for questioning. This proved extremely useful, says Tantek Celik, who consulted Yahoo Mail API developer(s) while working on his hack. In the process, Tantek's team ended up doing real testing of the API and hopefully was able to help the API dev-team improve its service.
Step 3: Profit?!
I think the attraction for both earning social merit amongst peers and possibly earning yourself a shiny new Sharp LCD TV was more than enough to help guide the brainstorming process. That is, Yahoo Mail team gave away a prize for the best hack using Yahoo Mail. Flickr did the same, as did other Yahoo groups.
Neat.