Today, many companies make business decisions after analyzing huge amounts of data. E-commerce services need to process data about lots of orders to offer products customers are likely to buy. Marketing companies and marketing departments need to analyze the behavior of website visitors to send personalized emails. Video hosting platforms like YouTube have to learn their users’ preferences to deliver relevant content.
To create value for users (the output), digital businesses need to analyze a huge amount of user data (the input). In other words, they need to apply algorithm technologies.
The market for algorithms is quickly growing. We might soon say “there’s an algorithm for that” just as we currently say “there’s an app for that.” And today, you don’t even need to be an expert in semantics or facial recognition to use algorithms in your business – you only need to find the right algorithm that does all the work for you.
Let’s consider why algorithms are being integrated into businesses across the board and, in fact, creating new markets.
What are algorithms and what is the algorithm economy?
Algorithms are nothing new. But as information technology has developed, algorithms have become more affordable and thus almost ubiquitous. Google, Yahoo, and Bing use algorithms to provide relevant search results. Apple uses algorithms to make Siri recognize speech. Apple has even filed a patent for an algorithm that would enable Siri to provide smart replies when a person can’t answer the phone. Facebook’s algorithms is constantly evolving to ensure a better experience for users. Supply chain companies like Dell, Colgate-Palmolive, and Li & Fung continue to optimize their operations with algorithms.
And there are tons of other spheres where algorithms are already used. Algorithmic tools are quietly but persistently being implemented around the world. They’re everywhere from healthcare to law enforcement, making decisions that influence our lives.
[The Siri virtual assistant]
Even the recipe for your favorite cake, in fact, is an algorithm. An algorithm, in a nutshell, is a step-by-step set of operations. So how is a computer algorithm different from a list of ingredients and instructions for putting them together?
For a more academic definition of algorithms, we can look to Gartner: “Algorithms are a mechanism to capture knowledge and insight in a packaged form that can be simply reused in a consistent fashion.”
Broadly speaking, a business becomes an “algorithmic business” when it derives value from data and the algorithms that process that data.
Gartner offers the following definition of an algorithmic business: “Algorithmic business is the industrialized use of complex mathematical algorithms pivotal to driving improved business decisions.”
The algorithm economy isn’t about selling smarter apps. It’s about selling tools that enable developers to make their apps smarter. It’s about a new stage of innovation where developers can monetize their best practices and know-how.
Why the rise of the algorithm economy is inevitable
Algorithms have already found their way into a variety of business spheres. Any business can benefit from algorithms, from healthcare to education. The main reason why algorithms have become so widely used is the development of machine learning and artificial intelligence. These technologies make algorithms more accessible to