The Hierarchy of Marketplaces — Level 3 (Sarah Tavel)

Author: Sarah Tavel (Benchmark) URL: https://medium.com/@sarahtavel/hierarchy-of-marketplaces-level-3-1d1a5772ea08 One-line: Level 3 is dominating: each city or category you win funds the next, so outrun in your thimble, broaden the buyer use cases without losing what you stand for, and run the playbook across the map.

Key claims

• When cohorts strengthen and organic growth rises, the market is tipping — but not won.
• Each city or category you win is its own tipping loop: more contribution profit to reinvest, and marketplace improvements amortized over a bigger base.
• Three moves: become #1 by a wide margin in the original thimble; broaden the buyer use cases you solve; take the Level 1–2 playbooks to multi-threaded domination of the map (Kyle files this under Playbooks).
• Broaden without losing the brand: Uber’s SKUs are all transportation; Etsy chasing GMV before its IPO let mass-manufactured goods in and “alienated its crafters and lost its soul” (Wired).

Notable quotes

• Read Hierarchy of Marketplaces — Level 3 by Sarah Tavel Marketplaces
  • If you’re ready for Level 3, **your cohorts are performing stronger and stronger, and you are seeing more and more organic growth. **Congratulations, the market is tipping towards you. But we can’t declare victory yet.
  • Each city or category you win creates its own tipping loop: they generate more contribution profit, which lets you re-invest that profit into your business, while also amortizing the cost of improvements to your marketplace across a bigger and bigger base. Competition
  • First, there is outrunning and becoming 1 by a wide margin in your original market or category (your thimble).
  • Second, there is expanding beyond your thimble and broadening the buyer use cases you solve for.
  • And third, there is taking the playbooks you’ve honed in Level 1 and 2 to pursue multi-threaded domination of the map. Playbooks
  • The key with broadening is to do so in a way that is consistent with your brand and mission. You still need to stand for something in the buyer’s mind. For example, Uber ($UBER) has continued to expand its core SKUs, but all are a means of transportation.
  • There was a period of time when Etsy, I suspect chasing GMV growth before its IPO, stopped limiting supply on Etsy to handcrafted goods. As detailed in this Wired piece, “How Etsy Alienated Its Crafters and Lost Its Soul”, buyers didn’t know whether they were looking at handcrafted or mass-manufactured goods, and the creators who were getting underpriced by mass-produced goods revolted, eroding trust and total happiness on both sides. Not a good situation.

How it connects

• Hierarchy of Marketplaces
• Marketplaces
• Sarah Tavel
• Competition
• Playbook
• Etsy
• Uber
• The Hierarchy of Marketplaces — Introduction and Level 1 (Sarah Tavel)
• The Hierarchy of Marketplaces — Level 2 (Sarah Tavel)