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AI Algorithms 101: What They Are & How They Work

Updated: Mar 17, 2022

Curious to learn how AI algorithms can help your business, but don’t know where to start? Here’s a quick guide to help you understand the basics.

Artificial intelligence is nothing new, but many businesses still struggle to understand and implement it within their strategies. We suspect that this could be because the vast majority of people don’t understand the basic mechanics of what AI algorithms are and how they work, despite AI integration throughout our daily lives.

Having this knowledge is critical to being able to successfully leverage this umbrella of technology within a business context, which is why we’ve created this quick explainer guide. Here, you’ll gain a foundational understanding of AI algorithms, and what kind of problems they solve for businesses today.

What are AI algorithms?

From being able to ‘speak’ human language, to giving businesses the ability to predict consumer behavior, AI algorithms have a wide variety of applications. But before we dive into those, it’s helpful to break down the concept into the two parts that make it up.

What is AI?

At its core, AI is about mimicking human intelligence. Since its initial development in the late 1950s, AI researchers and computer scientists have created computers, robotics systems, and other devices that operate with the help of artificial intelligence. Today, AI plays a part in powering pretty much every device you use, from your computer to your phone and car.

What is an algorithm?

The term “algorithm” is thrown around all over the place these days—especially by marketers—but it’s not actually that complicated of a concept. (It certainly isn’t some evil, biased robot choosing who sees your Instagram posts.)

An algorithm is simply a set of step-by-step instructions that tell a mathematician (or in AI’s case, a computer) how to achieve a set outcome. In the case of computers, algorithms provide the information needed to move forward. Without that information, the computer wouldn’t be able to complete its function.

An AI algorithm, then, is a set of instructions that allows a computer or other device to learn—and potentially make decisions—on its own. By automating these tasks and allowing computers to make decisions without human input, businesses can often save a lot of money and time.

Depending on their function, these algorithms range from simple to extremely complex and sophisticated. Fortunately for organizations today, there are a variety of AI systems out there that can easily be integrated into existing business processes. Explore our case studies on various AI applications here.

Examples of AI algorithms

Like we mentioned before, AI powers much of the technology we use today. To gain a clearer view of exactly where these algorithms are at work, we’re going to zoom in and take a closer look at a few examples of AI-powered algorithms that many of us already use in our day-to-day lives.

Spam filters

Have you ever wondered how your email platform knows which messages to send through to your inbox, and which to mark as spam? As it turns out, these platforms use simple AI algorithms that scan for certain suspicious phrases or email accounts to keep malicious content out of your inbox.


Waze is a great example of a more complex AI algorithm model. Using information from satellites, along with human-reported incidents like accidents and speed traps, Waze provides real-time information on traffic and can predict what times traffic will be heaviest on your route.

Waze is an example of a powerful AI algorithm that doesn’t just help businesses, but people at large. It’s popularity grew as more users realized its effectiveness in locating accidents, roadblocks, and construction work.

Mobile check deposits

We often don’t think about it, but AI has a large (and growing) presence in the financial industry. For example, a simple algorithm can ‘read’ your checks, making it easy to deposit them from your phone.

Netflix’s content recommendation

This is perhaps one of the most well-known examples of an AI algorithm. The algorithm uses information on what you’ve previously watched, as well as your demographic information to suggest new content you might like.

Types of algorithms

There are many different types of AI algorithms that can be classified depending on their function and level of human involvement. Broadly speaking, they can be broken down into three major groups:

1. Classification algorithms: These types of algorithms work by dividing a variable into different classes, and then predicting a class for a given input. This is a common way email spam filters are created. (The classes would be “spam” and “not spam,” while the input would be the email you’re receiving.)

2. Regression algorithms: A regression algorithm works to predict outputs based on the data that’s input into the learning system. Oftentimes these types of algorithms are used to predict things like traffic patterns or weather. (This is how Waze predicts your best route, or your “output,” based on the data it receives from other users, or the “input.”)

3. Clustering algorithms: This is where data points are separated and organized into groups according to their similarities. When it comes to fraud detection, this type of algorithm can be useful in grouping things like fraudulent transactions together to better understand what ties them together. (These algorithms work best with data developed over long periods of time, like using past fraud cases to detect certain patterns.)

Why do businesses use AI algorithms?

Hopefully now you see just how useful AI-driven algorithms can be in solving both simple and complex business problems.

Within any organization, efficiency, productivity, and the ability to innovate are critical. By adopting digital transformation culturally in your company, technological solutions provide the best pathway to achieve your goals at scale. AI is no exception in this. Businesses across all industries have adopted AI to save time, money, and do more with their data and resources.

How AI algorithms differ from machine learning algorithms

As the umbrella that is AI technology continues to grow and expand, it’s important to distinguish between what it means to utilize an AI algorithm vs what it means to leverage a machine learning algorithm.

A sister technology to AI, machine learning algorithms use structured data to perform an action without having to be programmed to do so. Machine learning algorithms go a step beyond AI to help automate even more tasks. Nowadays, some businesses utilize a combination of both AI and machine learning algorithms to help their teams and digital services perform their best. Read about it more in-depth here.

Key takeaways

All-in-all, AI is part of the digital future we can’t ignore. In order to continue growing in an efficient and progressive fashion, businesses like yours need to start considering adopting AI algorithms sooner than later to be ahead of the curve.

Curious to learn more about how using AI algorithms can impact your business? We’ve curated a large AI affiliate network of companies that can help you bring AI and other emerging technologies to your organization. Reach out today to learn more.

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