The consumer ecosystem

As one of the many people who downloaded the data Yelp posted in its Kaggle data mining competition, I couldn’t help but start thinking about what other value Yelp could provide beyond the consumer services that are the core of its business. I have an idea for a business intelligence application:

Businesses generally define their market in terms of the consumers within, and the other businesses with which they compete in offering similar value to the consumer. This is a very inward-looking way of defining a market. A better way is to define it through the eyes of your customer. Figure 1 was constructed using a methodology described in a later section from some of the Yelp data released for its Kaggle competition. It shows a cluster of businesses in Phoenix, AZ that have been classified into the same business categories. On the surface it seems like a strange mix of radio stations and newspapers, however they are clustered together because they all are categorized as mass media. This depicts a set of competing businesses as typically conceived.

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Figure 1: A traditional map of market competitors united by their mass media categorization.

Figure 2 focuses in on one of the businesses in Figure 1, KUPD 98 FM, and depicts its place in a diverse business ecosystem constructed from the other businesses reviewed by listeners who wrote a review of KUPD. The central position of Delux Burger among all these businesses is surprising, counter-intuitive and a potentially valuable insight. However, the true value of the data pattern is that it gives KUPD a deep, multi-faceted insight into the behavior of its listeners. The potential applications of this insight are broad and certainly include arming the KUPD ad sales manager with evidence to show the 71 businesses in Figure 2 the potential value of advertising on KUPD. What might KUPD be willing to pay Yelp for this insight, updated on an ongoing basis? I think that being able to provide this information to any business listed on Yelp would constitute a minimum-viable product.

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Figure 2: The business ecosystem of which KUPD is a member. Unlike the traditional market structure depicted in Figure 1, this ecosystem contains no direct competitors (i.e., radio stations). This graphic depicts the businesses that KUPD listeners frequent, they are principally united by their patronage of Delux Burger.

Figures 1 and 2 depict parts of two large networks of businesses listed on Yelp. In Figure 1 that network is created by linking businesses together that were classified into the same business categories (e.g., Discount Store, Nightlife and Music Venues), the more categories a pair of businesses share the more similar those businesses were considered to be. The overlapping web of categories creates a densely connected business network. The network was then pruned to a minimum-spanning tree, the smallest set of connecting links needed to link all the businesses together into a network structure of minimum total length. The simple set of links depicted in Figure 1 is from that minimum-spanning tree. The widely-known Girvan-Newman algorithm was then used to find communities among the businesses in the network. These communities are considered to be the true sub-markets within the overall network. Figure 1 depicts one such community of businesses, connected by the minimum-spanning tree.

A similar procedure was used to generate the network depicted in Figure 2, except in that case businesses were linked because the same people wrote a review of each business. The length of each link was based on the number of reviewers two businesses shared, as well as the number of stars the reviewers awarded each business. Again, the minimum-spanning tree algorithm was used to simplify the network, and Girvan-Newman communities were identified. Figure 2 depicts one such community, except in this case we have a diverse business ecosystem patronized by the same consumers.

As I stated in my introduction, these business ecosystem insights are highly actionable from a managerial perspective. This is particularly true in the way they suggest potential partnerships among businesses that do not compete, yet share the same customers. However, even when viewed from a traditional competitive analysis perspective, the consumers’ view of the market makes it obvious what the real competitive dynamics are. For example, in Figure 2 Delux Burger is the central influence that organizes the ecosystem. There are several other restaurants that, while they only occupy a peripheral position still attract enough attention to be on the consumer’s radar. What of the other restaurants whose food is utterly unremarkable, nether good, nor bad, and thus unworthy of review? Their absence focuses the attention of the competitors in the ecosystem on those who are their real competition. This information should also be a wake-up call for those restaurants that are overlooked. If that insight causes those restaurants to raise their game, then the depiction of Figure 2’s ecosystem might change, prompting all the businesses in the system to want to update their knowledge and business practice on a recurring basis.

I’m working on a web application to display this analysis for all the businesses in this dataset. When it is ready it will be at: http://ecozanti.herokuapp.com/