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Category: Artificial Intelligence

11 Insane Machine Learning Myths Debunked for You!

The world is becoming smart, smarter than ever before. There are homes that know how to turn on the lights by judging their intensity and there are cars that can drive themselves. Isn’t it something like living in a sci-fi world? Everything that was imagined is turning into reality. Among all that we hear about the upcoming technology, machine learning (ML) is a common term being associated with almost all of them. The term has been more misinterpreted than understood and there has been a considerable measure of hype buzzing around it. With more gadgets and technologies being launched every day, customers are keen to know what is it that is making them smarter? They are curious to discern the tech running behind the smartness and understand how it can benefit them in their personal as well as business ventures. This inquisitiveness towards the “working” has lured people to read and question about the same, however, the responses have not been palatable. For instance, you may often see mobile companies using the terms artificial intelligence and machine learning interchangeably for their products, now this is how a misperception is shaped. The customers do not understand the difference between the two and start treating them as synonymous with each other. The aim here is to make you understand the similarities and differences between “machine learning” and the terms it is confused with. this write-up shall provide you with a clear insight so that you can differentiate between the hype and the reality. It is important because machine learning forms an integral part of almost all data-driven work. In the event that you intend to consolidate it into your business, you should discern what it may or may not be able to do for you. Having a clear perspective will ensure that you develop a strategy that fits into your business module and helps you accomplish the set objectives. Removing the Misconception You know how they say in school that if your basics are clear, you will understand each and every concept and if not then surely there will be trouble. This concept will hold true in your entire life and therefore if you recognize the simple notion of machine learning you’ll never be influenced by the related hysterias.  The figure below describes machine learning in its most naive form. There is a lot of reality and there is a lot of hype pertaining to machine learning. But with the above-illustrated diagram, it should be clear that machine learning is, training a machine by giving it a large amount of data and then letting it perform based on that learning. Exposing the Machine Learning Myths Machine learning is currently going through a phase of inflated expectations. Along with ongoing machine learning developments around the globe , there are still a lot of organizations looking forward to conceptualizing and running ML projects without even exploring the power of basic analytics. How do you expect them to meet their goals when they do not know what ML can or cannot do? In such a scenario it becomes imperative to know the myths and truths related to the subject. #1 Machine Learning and Artificial Intelligence Are Same One of the most common  misconceptions is between artificial intelligence and machine learning. Both the terms are not only different in words but are two different fields belonging to a bigger pool of data science. In order to understand the difference consider this example – You wish that the camera of your phone should recognize a dog. Now in order to do that you provide it with a huge amount of data that contains pictures of all the types of dogs present in the world. With the help of these images, the camera is able to create a pattern that resembles a dog. Now whenever you point the camera toward the dog, it matches the pattern and that is how you get a positive hit. On the other hand, pointing the camera toward a cat doesn’t identify it as anything. This is a machine-learning process where the machine is trained to accomplish a particular task. Artificial Intelligence on the other hand is a broader concept, where the machines are trained in such a way that they can make their own decisions just like the human brain. If you put a cat in front of a camera that works on an AI technology, it will use it as another input and further reuse it to train itself.  This training would help the AI-enabled phone to tell that isn’t a dog but it may be something else that can be explored. #2 Hiring the Best ML Talent Is Sufficient to Resolve Business Issues Business firms are spending a lot of money in gathering the best machine learning talent which can analyze their data and offer useful insights. What they forget in the process is that machine learning is just one part of an effective strategy, the basics are to have the right type and amount of data. If there is no one who can fetch the data, what will the professionals work upon? Therefore, businesses do not need a staff good in one field but someone who knows how to work from the scratch. There are data science firms all over the globe that can help businesses develop a correct approach and provide the useful insights they have been looking for. #3 ML Implementation Requires Humongous Infrastructure Machine learning sounds scientific and complicated that many presume it is not meant for their business. After all, what will an ordinary business do with advanced technology? Not every SME hires AI experts, isn’t it? That’s where we are wrong Years before it was said that if you wish to carry our ML operations on your premises, you’ll need to invest a large amount in infrastructure. The scenarios have changed now. Since data science and data analytics has become such an integral part of the business world, there are professionals who are

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6 Innovative Ways of Using Machine Learning in E-Commerce

Machine learning is one of the most searched keyword on any search engine at this point of time. The reason is quite clear; the benefits of utilising it in any industry is beyond imagination. We are explaining how an e-commerce business can make use of machine learning for profit maximisation

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Machine Learning for Transactional Analytics: Customer Lifetime Value v/s Acquisition Cost

Understanding customer transactional behavior pays well for any business. With the tsunami of start-ups in recent times and the immense money flow in businesses, customers find lucrative offers from companies for acquisition, retention & referral strategies. Understanding the transactional behavior of a customer has become even more complex with the advent of new business houses every day. Although with the rise of powerful machines, one can easily manage to work with TBs of data, the complexity of business economics has made this behavioral analysis far more difficult. Collecting and analyzing your business data on all aspects such as acquisition cost, operational cost, base profit, revenue growth, referrals, etc can help in providing the lifecycle profit patterns from a customer. But it does not help in solving many business questions such as: What is the actual value of a new customer in Dollars worth today? How much money business can spend to acquire a new customer? Let’s take an example to understand it more intuitively. Firstly, to estimate the value of a new customer, we have to know the annual profit patterns or cash flow patterns if the cash flow pattern differs from the profit pattern of a customer. Secondly, we need to figure out how many years customers stay with your business. The figure above shows customer profits for an imaginary firm based on all factors mentioned earlier. Customer value keeps on increasing with the time for which customer stays with the company. Customer who stays 2 yrs will generate $26 of profit ($80 acquisition cost balanced in first 3 years profits $40 & $66. If the customer stays for 5 years, will generate $264 in total (-$80+$40+$66+$72+$79+$87). But the differences in customer value are very large. For the same calculations, if done for 10 years, customers will generate a net worth of $760. It would not be wise to spend $760 today for a customer who will stay with the company for 10 years as the profit generated in the future would not be equivalent to $760 today. We need to apply discount computing to take it to present value. Using a standard 15 percent discount rate will make $760 to $304. (To get the net present value of first-year profit, therefore divide $40 by 1.15, for next year divide $66 by 1.15, and so on). So for a customer who will stay with the company for 10 years, one can pay up to $304 on acquisition costs. Now we know how to calculate the value of customers based on their life expectancy of customers. Customer Acquisition Cost vs Lifetime Value Customer Acquisition Cost or CAC provides information about what losing a customer may cost your business, while Customer Lifetime Value or CLV shows how much revenue each lost customer could potentially bring to your business. With this knowledge, you can better plan your budget and strategy with your marketing team. Customer Lifetime Calculations The next question is what is the expected duration of a customer to stay with the company? To answer this, we have to find out retention rates for a customer. It is a fact that retention rates vary among customers based on age, profession, gender, acquisition source & maybe more than dozen variables. The simplest way to calculate average customer stay time is to calculate the overall defection rate and invert the fraction. First count the number of customers who defect over a period of several months, then annualize this number to get a fraction of the customer base to begin with. e.g. you lose 50 customers out of 1000 customers over three months. This works to 200 customers a year or 1/5 of all customers. Then we need to invert this number, it will become 5. So now we can say, on average, a customer stays with the company for 5 years. In percentage terms, the defection rate for customers is 20%. Lifetime Calculation Improvements To estimate customer cash flow accurately, we need to refine the above-mentioned calculations. Firstly, we have assumed defection rates are constant throughout the customer life cycles. In real life, such is never the case; defection rates are very much higher than average in the early years and much lower later on. Taking averages may lead to over or under-estimating the profit numbers. Additionally one more refinement we need to make to calculate the true value of a customer. Instead of trying to calculate the value of a single, average, static customer at a single moment, we need to think in terms of annual classes of customers at different points in their life cycles. In the real world, the company acquires new users each year. some of them defect early, others may stay for years. But the company invests money in the entire set of customers. So, to get the present value of the average customer, we must study each group separately over time. Let’s take a scenario as shown in the above image, where 100,000 new customers enter at time zero. The company invested $80 at time zero making it to a total of $80*100,000= $8 million for the whole set of customers. By end of year 1, 22% of customers defected, and only 78% left, to pay back invested 8 million. By year 5, more than half people defected. To get the present value of a customer, we will estimate the set of cash flow people generate till the time they defect. Earlier in the blog, we get the current value of the customer at $304. At a constant rate of the defection of 10%, we may be dangerously wrong in deciding the money to be invested in customer acquisition whereas the actual defection rate shown in the above image makes this number only $ 172 from $304. Imagine a company spending $200 on new customers based on earlier calculated values. It would be a completely loss-making venture. Machine Learning Scope In the above calculations, we tried to approximate the customer lifetime value & corrected ourselves initially from

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