Finding parking in a city has historically been an infuriating experience. Prices can vary widely from one parking garage to the next. And to make matters worse, you often have no visibility to a garage’s price until you’ve driven inside and have no feasible way to backtrack. Thus, you park and leave the garage feeling that you got ripped off.
SpotHero has emerged as a winner of the digital age by creating a platform that eliminates this information asymmetry and benefits both sides of the platform: parkers and parking garages. First and foremost, parkers benefit from an equalized playing field of information. A parker can input their desired location and time period into the SpotHero app which will yield a map of parking facilities and their prices. The parker can compare the facilities and reserve a spot through the app. On top of the price transparency benefit, the rates offered in the app are often discounted from the rates that non-app users would receive. This discount is the direct result of the benefit that SpotHero is providing to the parking garages. A parking garage’s costs are almost entirely fixed. Thus, wasted utilization of parking spaces can be a significant drain on profits. Being part of the SpotHero network drives incremental parkers and their dollars into these garages, and thus the garages are willing to give SpotHero ~15% of the parking fees. What’s more, the parking garages can continue to charge higher prices to the less savvy parkers who come to their garage without using the app. That two-tiered pricing option minimizes the risk that garages take on by offering discounts to SpotHero users. Thus, all parties end up better off: the garage has increased its utilization and revenue, the parker feels better knowing that they’ve made an informed purchase, and SpotHero has pocketed ~15% of the transaction. Knowing that ease of use is also critical to customer adoption, SpotHero has encouraged garages to install scanners so that parkers are able to seamlessly enter and exit the facility.
Since SpotHero is a private company, it’s a tough to get a fully comprehensive sense of their success to date. However, the information that we do have is positive. As of July 2017, SpotHero had integrated with over 6,000 parking operators in 50 cities and saw revenue double from 2015 to 2016. They also raised $30 million of funding in 2017, bringing their total to $57.5 million. Counterintuitively, SpotHero seems to have succeeded because they didn’t attempt to fully “uberize” parking to the same extent as some of their competitors. For example, in 2016 competitor Zirx admitted defeat in their attempt to create an on-demand valet parking platform because it proved too difficult to manage to the appropriate number of valet contractors to keep both wait times and costs sufficiently low. I would argue that SpotHero’s success is in large part due to its parking solution being far less ambitious. SpotHero’s service requires relatively minor behavior changes from either side of their platform and doesn’t rely on an ability to predict user demand. Sometimes the simpler solution is the better one.
SpotHero will surely look to follow-up on its initial success with additional ways to generate revenue. In 2017 they acquired Parking Panda which had become a leader in event-related parking. They’ve also partnered with Wageworks to devise a program that gives commuters more flexibility to use pre-tax dollars to pay for parking at work. Finally, with an eye towards the future SpotHero is thinking about how autonomous cars might one day interact directly with the parking facilities to make reservations. The biggest challenge there will be getting the parking garages to configure their data in such a way that they can easily interact with those cars. But as long as parking garages have excess capacity, they will have incentive to work with SpotHero. And that’s good news for anyone who has ever walked out of parking garage feeling bamboozled.