Exploring Local
Mike Dobson of TeleMapics on Local Search and All Things Geospatial

More on the Classification of Business Listing/POI Databases

June 21st, 2007 by MDob

Last time we started looking at the issue of how business listings/POI providers attempt to describe businesses by classifying the type of economic activity involved. Let’s continue the discussion and start out with SIC and NAICS, which are classification schemes commonly used by data providers.

The Standard Industrial Classification (SIC) and the newer North American Industry Classification System (NAICS) (both catalog-based, multi-digit codes) were designed to allow the classification of business establishments by their primary type of economic activity. NAICS was jointly developed by the U.S., Canada, and Mexico as a successor to SIC designed to provide compatibility in statistics about business activity across North America.

If you want to get a handle on NAICS, see “Ask Dr. NAIC”S at the website of the U.S. Bureau of the Census.

Although NAICS and SIC are designed to classify businesses by their main economic activity, there is no official assignment of a NAICS code to a business by the government. The use of the NAICS codes by the government is done to classify businesses to satisfy the government’s need to report on economic activity, rather than to identify the business in an enforcement or tracking activity.

For example, The U.S. Census Bureau assigns one NAICS code to each establishment based on its primary activity (the activity that generates the most revenue for the establishment) to collect, tabulate, analyze, and disseminate statistical data describing the economy of the United States. Generally, the U.S. Census Bureau’s NAICS classification codes are derived from information that the business establishment provided on administrative, survey, or census reports (e.g. when a company applies for an Employer Identification Number (EIN), information about the type of activity in which that business is engaged is requested in order to assign a NAICS code).

Just to be clear, then, there is no official master list associating businesses with a specific NAICS/SIC category. In general, a business is free to select the NAICs categorization that it feels appropriately describes its prime economic activity. Often businesses will use NAICS to categorize their business if they apply for contracts from federal, state or local governments. However, even if a business identifies itself as a specific NAICS category, there is no guarantee that anyone else will use that category to describe it. Finally, some businesses have never heard of NAICS and have never used it to categorize their business.

More important to us is the realization that the companies creating business listings/POI databases, assign NAICS or SIC categories to the businesses they discover while compiling these databases. The purpose of assigning a category is to be able to convey the type of business to anyone interested in using these business listings to target specific types of companies for purposes of marketing, competitive intelligence and, of course, local search.

The use of NAICS/SIC to classify businesses is common because the categorizations are well-known, openly defined and serve as an interchange standard. Of course, each data gatherer assigns what they believe to be the appropriate NAICS or SIC codes to the businesses in their listing inventory. Since the classification is based on their method of classifying the business, the categories are regarded as proprietary and the categorizations often vary wildly between data providers. (By the way, have you noticed that the use of the term “proprietary” generally means “Yep, it’s our IP”, but what they do not want to tell you is that it’s not patentable, copyrightable and not used in a way that’s protected by Trade Secrets”?)

Note that although NAICS has succeeded SIC, both systems were designed to classify manufacturing industries rather than service industries. Unfortunately, service industries now account of approximately 70% of the economic activity in the U.S. For that reason, the governments of Canada, Mexico and the United States are developing a North American Product Classification System (NACPS), which will be focused on the services-producing industry (see this FAQ for more information on NACPS). NACPS is still under development and, at present, is not used by the providers of business listing/POI databases.

Most business listing providers realize the weaknesses of using NAICS/SIC-based classification and, also, tag their data using categories “borrowed” from the Yellow Pages. Next time, let’s talk about that and why today’s categorization schemes based on these three measures generate so many errors in local search.

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Posted in Data Sources, Local Search

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