SpotHero: Making city parking work better for you
SpotHero dramatically improves the self-parking experience for city drivers
Driving in a big city is stressful. Behind the wheel, a motorist has to constantly watch out for other cars, jaywalking pedestrians, and errant bikers. The mean, congested city streets are full of potholes and construction zones. Traffic jams can pop up at any moment and ruin a trip. The struggle does not end at one’s destination, however. A car must be parked. Finding a legal parking place is a time-consuming and expensive hassle (20 mins based on an IBM survey of drivers around the world), which seems to have become more difficult recently as cities have begun more aggressively ticketing to boost municipal revenues. In this context, a couple of Chicago roommates racked up thousands of dollars in parking tickets and decided there had to be a better way. Mark Lawrence and Jeremy Smith founded SpotHero in 2011 to take the pain out of parking.
The $100 billion parking industry has been waiting at least 25 years to be disrupted. This underdeveloped market for parking is characterized by glaring institutional voids that have attracted some $4 billion of venture capital funding for on-demand parking services. On the supply side, garages are asset intensive structures with high fixed costs, and unutilized spaces are wasted opportunities to generate revenue. Customers who want to be close to a particular location are essentially captive to whatever garage they happen to drive up to because they have no way to know their other options without surveying the area. Importantly, pricing is not transparent in this market: customers pay widely varying hourly rates throughout the day and week.
Alternately described as the OpenTable or Expedia of parking, SpotHero seems to have solved all of these problems by creating a platform that displays all of the participating garages in an area and compares their prices—for a given period of time. Users are able to reserve spots from these garages in advance and pay through the app using a credit card, rather than enduring clunky paper tickets. As a SpotHero user, I can confirm that the service is a dramatic improvement over the status quo. In return for downloading the free app, customers typically receive discounts of approx. 40% and are guaranteed never to pay more than the listed price. The major garage companies partnering with SpotHero are benefiting from the new customers to the tune of an extra $500,000 per year.
SpotHero exhibits classic network effects. Users only want to download and use the app if there are enough garages available in their area to compare and select. At the same time, garages only want to join the network, which provides them with a web interface that can be updated in real time based on their availability, if they see SpotHero as a funnel for new customers. To combat this inertia, SpotHero has adopted a highly local strategy, starting in Chicago and moving into cities one at a time. Sales representatives sign up garages, while the marketing team offers generous promotions to attract customers ($250 for referring friends and 50% off). SpotHero then receives a 15% commission on sales. To keep software development costs and complexity down, payments are processed through Amazon Flexible Payments Service. Today SpotHero has over 1500 locations primarily in Chicago, New York, Washington, DC, and Boston with plans to build out their local hubs in western US cities using the proceeds from their August 2015 $20 million Series B raise.
While customers undoubtedly benefit, it is worth noting that SpotHero has been accused of destroying value overall by enabling price discrimination and facilitating price wars between competing garages. With few exceptions (for electric vehicles, e.g.), parking is a commodity. It is a dubious claim indeed that customers would want to pay a premium for an equally convenient parking spot. To provide differentiated services in this sphere, SpotHero’s competitors provide event parking (Parking Panda and ParkWhiz), as well as personalized valet parking (Luxe, Zirx, ValetAnywhere, Caarbon, and Vatler), some of which provide additional services such as car washes or oil changes. For now, however, SpotHero believes in the power of their labor light, asset light model to improve the parking experience for customers and continue to promote their value proposition as the center of a two-sided network, brokering deals between people and private parking places. This fast-growing company is looking to expand internationally in the future.
I’m very curious about the impact this will have on how garages set their prices. With differentiated (and possibly real-time) pricing, the ability to price capacity effectively may become an important source of competitive advantage in the business. This might result in major consolidation of the industry as garages aim to split the fixed cost of cutting-edge pricing systems which might in turn diminish the bargaining power of platforms like SpotHero.
Very interesting post. As you said, parking industry has been waiting at least 25 years to be disrupted, and I actually believe an Uber-type parking app would complement SpotHero, by allowing people to offer their private parking spot for users. In addition to that, electronic parking meters would notify the app if the parking spot is available or not.
Alon, thank you for bringing up these additional models. When SpotHero first started, they were making it possible for individuals to rent out their personal parking places (more like an AirBnB model) during local sporting events. SpotHero eventually moved away from this model in favor of working with more established private garages that could provide scale quickly, as well as a higher base from which to draw fees. There are a few apps that work as you have described to enable individuals to rent out their parking spots (SPOT and Veer: http://bostinno.streetwise.co/2015/04/14/boston-parking-mobile-parking-apps-in-boston-cambridge-area/), as well as apps that make it easier to find public parking (Haystack and Parker, which uses sensors underneath the payment to determine whether a given spot is available, tested here: https://www.bostonglobe.com/business/2014/07/26/new-parking-apps-pass-test/0SwGoccK3rSPdtLIzakNqJ/story.html and with pics here: http://www.betaboston.com/news/2014/07/25/can-mobile-apps-help-make-parking-in-boston-less-miserable/). Haystack, which let you offer to sell a street parking space before you leave it, or buy a space from someone else, was banned due to legal complications. Of these, Veer sounds the most potentially interesting to me because combines the functionality of SpotHero and SPOT, as well as adding turn-by-turn directions, though by listing only the top 3 spots in an area may reduce SpotHero’s highest value to users, which is the ability to scan many garages and discriminate based on price.
Great post. This is an issue that is a commonplace for some many urban areas, especially in the developing world where rapid increase in ownership of cars has often not been matched with infrastructure development. What I really like about this idea is that it helps cities in becoming more efficient in how private space is used. I thought of it more as air bnb for cars and I would assume consumer would have a much lower reservation to rent their garage in comparison to their home.
Vlad mentioned a potential impact on pricing for the garage providers. I would be curious to see how these capabilities would impact cars of the future. Would car manufacturers consider including software like SpotHero in their models? And going more into the future, would we assume that a google car would be able to give us not only directions, but find the cheapest parking spot close to the location we want to reach?
Very interesting post. As you mention, having a local strategy makes a lot of sense for rolling out this business, and achieving network effects is tremendously important. Reading about how SpotHero is getting over the “chicken and egg” inertia reminded me of stories I heard from friends who tried out Luxe in San Francisco over the summer. Unlike SpotHero’s success in getting over the initial ‘inertia,’ it seems they haven’t amassed enough supply of valet parkers, with many people complaining that their valet parker took so long to arrive, they may as well have parked themselves. Getting that piece right at the beginning is very important, as a shortage on one side of the market can damage the service’s reputation, and potentially create a negative feedback loop.