What is data mining?

Data mining is the process of sorting through large data sets to identify patterns and relationships that
can help solve business problems through data analysis. Data mining techniques and tools help
enterprises to predict future trends and make more informed business decisions.

Data mining is a key part of data analytics and one of the core disciplines in data science, which uses
advanced analytics techniques to find useful information in data sets. At a more granular level, data
mining is a step in the knowledge discovery in databases (KDD) process, a data science
methodology for gathering, processing and analyzing data. Data mining and KDD are sometimes
referred to interchangeably, but they're more commonly seen as distinct things.

KDD is a specialized process that applies high-level, sophisticated data mining techniques to find
and interpret patterns from data. Though the terms are sometimes used interchangeably, KDD is
used especially for machine learning, databases, pattern matching, AI and enterprise use.

"[In comparison], the term data mining is broadly applied to looking through piles of data and trying to
find interesting patterns," said Peter Aiken, associate professor at Virginia Commonwealth University.

The process of data mining relies on the effective implementation of data collection, warehousing and
processing. Data mining can be used to describe a target data set, predict outcomes, detect fraud or
security issues, learn more about a user base, or detect bottlenecks and dependencies. It can also be
performed automatically or semiautomatically.

Data mining is more useful today due to the growth of big data and data warehousing. Data
specialists who use data mining must have coding and programming language experience, as well as
statistical knowledge to clean, process and interpret data.

Data mining history and origins

Data warehousing, BI and analytics technologies began to emerge in the late 1980s and early 1990s,
increasing organizations' abilities to analyze the growing amounts of data that they were creating and
collecting. The term data mining was first used in 1983 by economist Michael Lovell and saw wider
use by 1995 when the First International Conference on Knowledge Discovery and Data Mining was
held in Montreal.

The event was sponsored by the Association for the Advancement of Artificial Intelligence, which also
held the conference annually for the next three years. Since 1999, the Special Interest Group for
Knowledge Discovery and Data Mining within the Association for Computing Machinery has primarily
organized the ACM SIGKDD conference.

The technical journal, Data Mining and Knowledge Discovery, published its first issue in 1997. It's
published bimonthly and contains peer-reviewed articles on data mining and knowledge discovery
theories, techniques and practices. Another peer-reviewed publication, American Journal of Data
Mining and Knowledge Discovery, was launched in 2016.

Why is data mining important?

Data mining is a crucial component of successful analytics initiatives in organizations. Data

specialists can use the information it generates in business intelligence (BI) and advanced analytics
applications that involve analysis of historical data, as well as real-time analytics applications that
examine streaming data as it's created or collected.
Effective data mining aids in various aspects of planning business strategies and managing
operations. This includes customer-facing functions, such as marketing, advertising, sales and
customer support, as well as manufacturing, supply chain management (SCM), finance and human
resources (HR). Data mining supports fraud detection, risk management, cybersecurity planning and
many other critical business use cases. It also plays an important role in other areas, including
healthcare, government, scientific research, mathematics and sports.

The data mining process: How does data mining work?

Data scientists and other skilled BI and analytics professionals typically perform data mining. But
data-savvy business analysts, executives and workers who function as citizen data scientists in an
organization can also perform data mining.

The core elements of data mining include machine learning and statistical analysis, along with data
management tasks done to prepare data for analysis. The use of machine learning algorithms and
artificial intelligence (AI) tools has automated more of the process. These tools have also made it
easier to mine massive data sets, such as customer databases, transaction records and log files from
web servers, mobile apps and sensors.

Although the number of stages can differ depending on how granular an organization wants each
step to be, the data mining process can generally be broken down into the following four primary
stages:

1. Data gathering. Identify and assemble relevant data for an analytics application. The data might
be located in different source systems, a data warehouse or a data lake, an increasingly common
repository in big data environments that contain a mix of structured and unstructured data.
External data sources can also be used. Wherever the data comes from, a data scientist often
moves it to a data lake for the remaining steps in the process.
2. Data preparation. This stage includes a set of steps to get the data ready to be mined. Data
preparation starts with data exploration, profiling and pre-processing, followed by data cleansing
work to fix errors and other data quality issues, such as duplicate or missing values. Data
transformation is also done to make data sets consistent, unless a data scientist wants to
analyze unfiltered raw data for a particular application.
3. Data mining. Once the data is prepared, a data scientist chooses the appropriate data mining
technique and then implements one or more algorithms to do the mining. These techniques, for
example, could analyze data relationships and detect patterns, associations and correlations. In
machine learning applications, the algorithms typically must be trained on sample data sets to
look for the information being sought before they're run against the full set of data.
4. Data analysis and interpretation. The data mining results are used to create analytical models
that can help drive decision-making and other business actions. The data scientist or
another member of a data science team must also communicate the findings to business
executives and users, often through data visualization and the use of data
storytelling techniques.
Types of data mining techniques

Various techniques can be used to mine data for different data science applications. Pattern
recognition is a common data mining use case, as is anomaly detection, which helps identify outlier
values in data sets. Popular data mining techniques include the following types:

1. Classification

Classification assigns data points into predefined categories or classes based on their
features. It uses labeled training data to learn patterns, and then applies these patterns to
classify new data.

Example: Classifying emails as "spam" or "not spam."

2. Clustering

Clustering groups similar data points together without prior knowledge of categories. It helps
identify hidden patterns or structures within data, grouping them into clusters based on
similarity.

Example: Grouping customers with similar purchasing behavior for targeted marketing.

3. Association Rule Learning

This technique uncovers relationships or associations between variables in large datasets. It’s
commonly used to find rules that indicate which items or events occur together.

Example: Discovering that customers who buy bread are likely to buy butter.

4. Regression

Regression is used to predict a continuous outcome (numeric value) based on one or more
input variables. It helps in determining the relationship between dependent and independent
variables.

Example: Predicting the price of a house based on factors like square footage and location.
5. Anomaly Detection

Anomaly detection identifies data points that deviate significantly from the rest of the data.
It’s useful in situations where unusual behavior needs to be flagged.

Example: Detecting fraudulent credit card transactions.

6. Dimensionality Reduction

This technique reduces the number of variables (dimensions) in a dataset while retaining
essential information. It helps in simplifying complex datasets, making them easier to
visualize and analyze.

Example: Reducing the number of features in an image dataset to focus on key characteristics
for recognition.

7. Time Series Analysis

Time series analysis focuses on analyzing data points collected or recorded at specific time
intervals. It identifies trends, cycles, and seasonal patterns in time-ordered data.

Example: Forecasting future sales based on past performance trends.

8. Text Mining

Text mining extracts useful information from unstructured text data. It uses techniques like
natural language processing (NLP) to analyze text for patterns such as sentiment, topics, and
key phrases.

Example: Analyzing customer reviews to gauge product sentiment.

Data mining software and tools

Numerous vendors offer data mining tools, typically as part of software platforms that also include
other types of data science and advanced analytics tools. Data mining software provides key
features, including data preparation capabilities, built-in algorithms, predictive modeling support, a
graphical user interface-based development environment, and tools for deploying models and scoring
how they perform.

A sampling of vendors that offer tools for data mining is Alteryx, Dataiku, H2O.ai, IBM, Knime,
Microsoft, Oracle, RapidMiner, SAP, SAS Institute and Tibco Software.

A variety of free open source technologies can also be used to mine data, including DataMelt, Elki,
Orange, Rattle, scikit-learn and Weka. Some software vendors also provide open source options. For
example, Knime combines an open source analytics platform with commercial software for managing
data science applications, while companies such as Dataiku and H2O.ai offer free versions of their
tools.

Benefits of data mining

In general, the business benefits of data mining come from the increased ability of an organization to
uncover hidden patterns, trends, correlations and anomalies in data sets. They can use that
information to improve business decision-making and strategic planning through a combination of
conventional data analysis and predictive analytics.

Specific data mining benefits include the following:

 More effective marketing and sales. Data mining helps marketers better understand customer
behavior and preferences, which helps them create targeted marketing and advertising
campaigns. Similarly, sales teams can use data mining results to improve lead conversion rates
and sell additional products and services to existing customers.
Better customer service. Data mining helps companies identify potential customer service
issues more promptly and give contact center agents up-to-date information to use in calls and
online chats with customers.
Improved SCM. Organizations can spot market trends and forecast product demand more
accurately, enabling them to better manage inventories of goods and supplies. Supply chain
managers can also use information from data mining to optimize warehousing, distribution and
other logistics operations.
Increased production uptime. Mining operational data from sensors on manufacturing
machines and other industrial equipment supports predictive maintenance applications to identify
potential problems before they occur, helping to avoid unscheduled downtime.
Stronger risk management. Risk managers and business executives can better assess
financial, legal, cybersecurity and other risks to a company and develop plans for managing
them.
Lower costs. Data mining helps improve cost savings through operational efficiencies in
business processes and reduces redundancy and waste in corporate spending.

Ultimately, data mining initiatives can lead to higher revenue and profits, as well as competitive
advantages that set companies apart from their business rivals.

Industry examples of data mining

Organizations in the following industries use data mining as part of their analytics applications:

Retail. Online retailers mine customer data and internet clickstream records to help them target
marketing campaigns, ads and promotional offers to individual shoppers. Data mining and
predictive modeling also power the recommendation engines that suggest possible purchases to
website visitors, as well as inventory and SCM activities.
Financial services. Banks and credit card companies use data mining tools to build financial risk
models, detect fraudulent transactions, and vet loan and credit applications. Data mining also
plays a key role in marketing and identifying potential upselling opportunities with existing
customers.
Insurance. Insurers rely on data mining to aid in pricing insurance policies and deciding whether
to approve policy applications, as well as for risk modeling and managing prospective customers.
Manufacturing. Data mining applications for manufacturers include efforts to improve uptime
and operational efficiency in production plants, supply chain performance and product safety.
Entertainment. Streaming services analyze what users are watching or listening to and make
personalized recommendations based on their viewing and listening habits. Likewise, individuals
might data mine software to learn more about it.
Healthcare. Data mining helps doctors diagnose medical conditions, treat patients, and analyze
X-rays and other medical imaging results. Medical research also depends heavily on data
mining, machine learning and other forms of analytics.
HR. HR departments typically work with large amounts of data. This includes retention,
promotion, salary and benefit data. Data mining compares this data to better help HR processes.
Social media. Social media companies use data mining to gather large amounts of data about
users and their online activities. This data is controversially either used for targeted advertising or
might be sold to third parties.

Data mining vs. data analytics and data warehousing

Data mining is sometimes considered synonymous with data analytics. But it's predominantly seen as
a specific aspect of data analytics that automates the analysis of large data sets to discover
information that otherwise couldn't be detected. That information can then be used in the data science
process and in other BI and analytics applications.

Data warehousing supports data mining efforts by providing repositories for the data sets.
Traditionally, historical data has been stored in enterprise data warehouses or smaller data marts built
for individual business units or to hold specific subsets of data. Now, though, data mining applications
are often served by data lakes that store both historical and streaming data and are based on big
data platforms, like Hadoop and Spark; NoSQL databases; or cloud object storage services.