Summary: This article examines how collaborative filtering (CF), a data-driven recommendation technology, can advance the digital competitiveness of small and medium-sized enterprises (SMEs). Drawing on an illustrative case from Bandung’s local business community, we discuss the evolution of CF systems and their relevance in a post-pandemic digital economy. We describe the core technology behind user- and item-based recommendation engines and explore the main challenges and benefits of adopting CF for SMEs. Updated insights include the integration of modern AI techniques and hybrid approaches to enhance recommendation accuracy. Strategic implications for SME digitalization are outlined, emphasizing how data collection, customer engagement, and personalized marketing can be systematically implemented. Finally, we offer actionable policy recommendations for governments to support SME digitization and data-driven personalization, such as infrastructure investment, skills development, and collaborative data platforms. Overall, the analysis shows that CF is a potent tool for SME growth, provided that businesses and policymakers work together to overcome resource and knowledge gaps in the digital era.
Introduction
In recent years, the imperative for SMEs to adopt digital technologies has intensified, especially after the disruptions of the COVID-19 pandemic. Consumers now expect personalized experiences in online shopping, media consumption, and service delivery. For small businesses, offering tailored recommendations can deepen customer engagement and drive sales, helping them to compete with larger firms. Collaborative filtering (CF), a recommendation approach using patterns in user behavior, has emerged as a practical solution in this context. In a Bandung case study, for example, local restaurant owners implemented a CF-based recommender to suggest dining options based on user ratings and preferences. The success of such implementations illustrates how grassroots digital initiatives can enhance SME marketing and customer satisfaction in emerging markets.
More broadly, digital transformation trends as of 2025, including widespread cloud computing, mobile commerce, and artificial intelligence, have opened new opportunities for SMEs. Technologies like CF leverage the increasing availability of data to personalize offerings. However, small businesses often face constraints such as limited data, technical expertise, and financial resources. This article synthesizes original findings from the Bandung study and related developments, generalizing key lessons for SMEs across sectors. We discuss the architecture and evolution of CF systems, identify the benefits and limitations…
