Hierarchy of Marketplaces

What It Is

The Hierarchy of Marketplaces is a framework for building defensible marketplace businesses. The core insight: GMV is a vanity metric. Happy GMV is what matters.

Most marketplace founders race to grow GMV as fast as possible, spreading resources thin across markets and categories. This is backwards. The path to a dominant, profitable marketplace requires working through three levels in sequence:

1. Focus - Constrain your market to a "thimble" and achieve minimum viable happiness
2. Tip - Reach saturation in your focused market until it tips in your favor
3. Dominate - Only then expand to adjacent markets and categories

The key shift: Move from asking "How do we grow GMV?" to asking "How do we make both sides of our marketplace so happy they retain?"

When to Use It

Use the Hierarchy of Marketplaces when you need to:

• Launch a new marketplace and decide where to focus
• Diagnose why growth is stalling despite increasing GMV
• Decide when to expand to new markets or categories
• Evaluate marketplace health beyond top-line metrics
• Compete against incumbents with more resources
• Raise funding and demonstrate real marketplace value
• Choose between depth and breadth in your growth strategy

When Not to Use It

• You're building a product without two-sided network effects
• You have unlimited capital and no competition (rare)
• The market has no potential for winner-take-most dynamics
• You're optimizing a mature, already-dominant marketplace

Resources

Posts by Sarah Tavel:

• Hierarchy of Marketplaces series on Medium

Books:

• Platform Revolution by Parker, Van Alstyne, and Choudary
• The Cold Start Problem by Andrew Chen