Predictive analytics turns data into valuable, actionable information. Predictive analytics uses data to determine the probable future outcome of an event or a likelihood of a situation occurring.
Predictive analytics encompasses a variety of statistical techniques from modeling, machine learning, data mining and game theory that analyze current and historical facts to make predictions about future events.
In business, predictive models exploit patterns found in historical and transactional data to identify risks and opportunities. Models capture relationships among many factors to allow assessment of risk or potential associated with a particular set of conditions, guiding decision making for candidate transactions.
Three basic cornerstones of predictive analytics are:
Decision Analysis and Optimization
An example of using predictive analytics is optimizing customer relationship management systems. They can help enable an organization to analyze all customer data therefore exposing patterns that predict customer behavior.
Another example is for an organization that offers multiple products, predictive analytics can help analyze customers’ spending, usage and other behavior, leading to efficient cross sales, or selling additional products to current customers. This directly leads to higher profitability per customer and stronger customer relationships.
An organization must invest in a team of experts (data scientists) and create statistical algorithms for finding and accessing relevant data. The data analytics team works with business leaders to design a strategy for using predictive information.
Whether you're a wall street trader or Internet media buyer, knowledge is power. Engaged web users are now providing in-depth data about their actions and desires, powering a new generation of Predictive Analytics (PA).
Facebook, nearing 600 million active users, is the shining example of the meteoric rise of the engaged user. Through online engagement, users eagerly reveal more about themselves than slow old big-budget research studies could ever hope to uncover.
A new wave of PA start-ups are powered by social media, engaging brand awareness sites, on-line gamers, and always-on mobile web users. With APIs, platform providers create a virtuous circle - generating opportunities for start-ups and increasing the relevance of their platforms. Fueled by on-line ad spending approaching $50B, PA start-ups, their media buying customers, and venture capitalists are racing to discover the relevant insights which can predict users' needs and next actions.