The global recommendation engines market size is projected to reach USD 54 billion by 2030, from USD 3 billion in 2021, and is anticipated to register a CAGR of 37% during the forecast period (2022–2030). A recommendation engine is a data filtering technology that allows marketers to provide customers with relevant product recommendations in real-time. It uses complex algorithms and data analysis techniques, such as machine learning (ML) and artificial intelligence (AI), to recommend appropriate product catalogs to an individual.
It can also present products based on user preferences, historical browsing history, traits, and situational context on websites, applications, and emails. It is currently commonly used in business-to-consumer (B2C) e-Commerce industries that demand a customized strategy, such as entertainment, mobile apps, and education.
Better, individualized customer service and the quality of the solution/service are essential for a company's growth. The most important features of better customer service, likely to fuel market expansion, are customer happiness and customer retention.
Enterprises seek techniques and technology to utilize an advantage that their competitors may find difficult to replicate by providing highly individualized client experiences. These types of experiences use private data to provide a better experience to millions of customers. The outcome is determined by the execution. When done correctly, personalized customer experiences may help organizations stand out, develop client loyalty, and achieve a long-term competitive advantage, critical in today's competitive environment.
Customers no longer make purchasing decisions in stores but rather online in computer browsers and mobile phones in front of the digital shelf. For retailers, the price, placement, and advertising of their products are no longer merely compared to products on surrounding shelves but also against alternative products from shops with websites worldwide. In this regard, technologies such as recommendation engines that use AI and machine learning ensure that consumers' needs and products are on par, allowing them to stay one step ahead of their competitors.
Due to the abundance of consumer options, retailers have had difficulty discerning customer preferences. Technological developments are gaining traction and being adopted at a rapid rate across the sector. Various technological developments have reshaped consumer behavior and how they collaborate and communicate before and after-sales.
The growing requirement to take into account all user data to personalize and modify the best possible output is likely to impact recommendation system adoption across industries. The content that the client sees, i.e., the visual of the product, is one of the primary aspects that add to the consumer information.
By finding similarities between products based on their descriptions and labels and studying the consumer's previous history to recommend a comparable product, the recommendation engine can recommend products or things based on their description or attributes. The recommender system makes observations based on the feature set. It then assigns suggestions to clusters based on the labels in that cluster using the historical/labeled data cluster.
The biggest problem with examining labels to recommend products is that the identical products with different labeling can be overlooked or consumed inappropriately, implying that the information was not properly integrated. This is mostly caused by shifting user preferences. As a result, the complexity of correctly analyzing client preferences and labels in visuals is predicted to hamper its development in specific end-user industries, such as media and entertainment, travel and hospitality, and others, where visuals play a key part in influencing customer decisions. Hence, this factor hinders the growth of the recommendation engines market.
The retail business is undergoing a transformative digital shift due to consumer inclination to online shopping and product search. Furthermore, the pandemic has shifted marketing attention to elements like brand loyalty, enhanced interaction, and scalability.
According to the BDO 2020 Retail Digital Transformation Survey, 59% of respondents said they are working on marketing and sales projects. Approximately 32% of respondents stated that the projects are long-term (looking at the next 12 months).
Furthermore, technological improvements have created an enormous opportunity to use data to make better judgments. The customer journey has become increasingly complex in recent years, so focusing on a single activity or channel ignores the full picture of how customers interact with several additional touchpoints on their way to purchase. Various technologies assist retailers and marketers in reconciling several touchpoints of the customer's journey and creating a unique consumer identity.
Using these technologies, marketers may track how a customer progresses through the purchasing funnel and reach them on their preferred channel. The granularity also allows companies to understand better how customers interact with their media and assign credit to each interaction, allowing them to optimize their media buying. Furthermore, as these insights are generated in near real-time, marketers may seize opportunities to boost engagement and influence purchase decisions at every point of the customer experience.
Furthermore, e-Commerce players have been pushed to make informed choices about the technology and solutions they invest in due to rising digital commerce and tighter operational budgets, allowing them to maximize their ROI. Today's retailers want strategic solutions to maximize their customer conversion to understand customers and their expectations for convenient and consistent shopping experiences. As a result, over the projected period, retailers around the world are expected to increase their use of recommendation engines.
The COVID-19 pandemic significantly impacted how companies interact with their customers. Customers demand a high level of service that meets their needs, regardless of how the crisis plays out.
According to Cisco's AppDynamics' recent "Agents of Transformation Report," IT priorities during the pandemic have shifted in 95% of enterprises, with 88% reporting that digital customer experience is now their top priority.
Customers increasingly use chat, messaging, and conversational bots as self-service options. As a result, businesses must make these technologies available to provide a fantastic client experience while lowering conventional reliance on brick-and-mortar and live events, which are no longer viable in this age of social distancing. The rising usage of technologies in these firms is likely to boost the benefits produced by recommendation engines.
Before the pandemic, 70% of respondents to the AppDynamics App Attention Index said they expected digital interactions to be even more individualized than face-to-face encounters. This demand for personalization is much more pressing now. Such examples demonstrate the importance of a recommendation engine for every company.
By deployment mode, the market is divided into on-premises, and cloud. The on-premises segment accounted for the largest share in the global recommendation engines market and is anticipated to grow at a CAGR of 38%, generating revenue of USD 43 billion by 2030.
Machine learning is becoming an increasingly significant aspect of leading recommendation systems; a system must use machine learning to make sense of all the data and identify hidden relationships they may not know about. An onboard system that can offer quick results is typically used to attain the best outcomes. Algorithms are applied behind an organization's firewall with a server-based or an edge-based architecture for on-premises recommendations in many application areas.
Due to privacy and security concerns about personal data, many businesses adopt on-premises software. Companies can adapt and adjust the hardware according to their requirements and security needs, which is a big advantage of implementing on-premises deployment.
By type, the recommendation engines market is segmented into collaborative filtering, content-based filtering, hybrid recommendation systems, and other types. The hybrid recommendation systems segment dominated the market and are projected to grow at a CAGR of 39% revenue of USD 20 billion by 2030.
This strategy incorporates both collaborative and content-based filtering. It bases its recommendations on previous user activity as well as the preferences of the client for whom they are displayed. Spotify's tailored "Discover Weekly" playlist is a good illustration of the hybrid recommendation algorithm.
Many firms are increasingly using hybrid systems to improve the effectiveness of their solutions, and hybrid filtering is recognized to improve the algorithm's efficiency. For example, Sigmoidal, an IT service provider, created a product recommendation system for a home décor e-Commerce company by combining collaborative and content-based approaches and utilizing machine learning for detailed pattern recognition.
By end-user industry, the recommendation engines market is divided into IT and telecommunication, BFSI, retail, media and entertainment, healthcare, and other end-user industries. The retail sector held the largest share in the recommendation engines market and is forecasted to grow at a CAGR of 37%, generating a revenue of USD 19 billion by 2030.
To propel their business forward, retailers are expanding their presence in the market of recommendation engines. As the company reaps the benefits of providing more personalized direct-to-consumer experiences, Levi's said in April 2021 that it would continue to scale its AI-enabled product suggestion engine globally.
The recommendation engine, which was first developed in the United States in 2019, operates in real-time to better comprehend consumers' online behavioral indicators so that individualized buying recommendations may be provided. As shop closures swept the globe in 2020, Levi's increased its focus on technology that predicts what a customer wants and then displays those or comparable things. Furthermore, the organization has been employing agile development methodologies to introduce new features, improve models, and improve prediction accuracy.
Based on region, the global recommendation engines market share is divided into North America, Europe, Asia-Pacific, Latin America, and Middle East & Africa.
The global recommendation engines market was dominated by Asia-Pacific, with revenue expected to grow at a CAGR of 39% to USD 23 billion by 2030.
Alibaba, an e-Commerce giant, utilizes AI and machine learning to power its suggestions. For example, Alibaba's search engineering team developed AI OS, an online service platform that combines personalized search, recommendation, and advertising.
Google Cloud revealed intentions to develop an AI recommendation engine for online businesses around the world, including Asia, in January 2021. Product Discovery Solutions for Retail, a cloud computing service, may enable retailers to integrate search and recommendation capabilities that boost customer engagement and conversions across their digital properties.
The North American region accounts for the second-largest share of the global recommendation engines market, at a CAGR of 36% expected to generate USD 14 billion in sales by 2030.
The United States has a strong innovation ecosystem that is fueled by strategic investments in advanced technology, complemented by the presence of major companies and entrepreneurs from around the world, as well as renowned research institutions, which have accelerated the development of technologies such as artificial intelligence and machine learning, which are highly supportive of recommendation engines in the North American region.
Microsoft, Google, Amazon, and IBM, among other significant technology companies in the region, have stepped up as important market players. The region has become the most advanced as well as a lucrative market for recommendation engines, owing to the existence of the most advanced enterprises, and it is likely to attract investments during the forecast period.