clustering tags in large scale user-tag matrix in matlab

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I am trying to cluster a set of tags in huge sparse matrix of user-tag in matlab, say:

35000*74000 with 99% sparsity.

I probably have two choices:

1: Making Co-occurrence matrix of tags and apply clustering on Tag-Tag co-occurrence matrix.

2: Considering users as features of tags and use Transpose(user-tag) for tag clustering.

I have no idea which one is better, but both of them have problem with large size of users and tags.

Really appreciate any comment or proposed solution.

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