On-Demand Valet Parking Seemed Like Such a Great Idea. It Wasn't

Zirx and Luxe are shifting away from the on-demand model

Venture capital firms bet tens of millions of dollars that startups offering affordable valet parking to harried urbanites would flourish in the on-demand economy pioneered by Uber.

Parking valets working for companies with names like Luxe, Zirx and Valet Anywhere became a common sight in the congested precincts of San Francisco, Chicago, New York and other U.S. cities. With a few taps on a phone, customers could summon a valet and avoid the hassle of finding a parking spot and then squeezing into it. Once they'd finished shopping, dining or taking a meeting, the valet would drive up with the vehicle.

Turns out it’s hard to make money parking cars. Two startups (Caarbon and Vatler) quickly imploded and three more (Luxe, Zirx and Valet Anwyhere) are shifting away from the on-demand model. Their retreat is a cautionary tale for scores of startups flogging instant gratification to people who, on the spur of the moment, want their cocktails mixed, laundry folded and bodies massaged.

"Uber became huge so people felt everything needed to be on-demand," says Ryan Sarver, an investor at Redpoint Ventures and a Luxe board member. "Then people went out of business because it doesn’t have to be."

In the beginning, on-demand valet parking had plenty to recommend it. For no more than $35 someone attending a Broadway show could have her car parked and then driven back to the theater. For a few dollars more, a Zirx valet would top up the tank and wash the car. By contrast, self-parking the vehicle in a midtown Manhattan parking garage would cost more than $45.

After raising $36 million, Zirx quickly expanded from San Francisco to five more cities. Like its rivals, Zirx was chasing economies of scale: to charge attractive rates, it needed to park a lot of cars every day. But Zirx began burning through cash because it had to pay its growing legions of valets—including the time they spent hanging out waiting for a text alert. Meanwhile, the company was struggling to extract meaningful discounts from parking garages because there’s no shortage of demand for the limited number of parking spots. The upshot: Zirx was losing money on many transactions.

So along with its rivals, Zirx tried surge pricing and cut costs by parking farther away in cheaper garages. Service suffered, and customers rebelled. Ted Homma, a tech executive and Zirx customer, recalls using the service last year for an event at San Francisco’s Fort Mason. The app said the valet would arrive in 10 minutes—then 45 minutes. He called customer support and complained. Suddenly the valet was five minutes away and then arrived in an Uber. "Of course, they’re making a loss right there,” Homma says.

Sean Behr, Zirx’s founder and chief executive officer, remains enamored of the concept but grudgingly bowed to the unworkable math and shut down the consumer side of the business at the end of February. Now he’s selling parking and other car-related services to companies. It’s a more predictable business because workers typically show up and leave at the same time every day. And he says corporate customers tend to be less price-sensitive than consumers.

While Behr declined to disclose numbers, he says the enterprise business will soon be profitable—which is crucial since it’s getting harder to extract money from VCs these days. With the well drying up, he says, “you really need to get money from customers.”

Luxe CEO Curtis Lee remains outwardly confident that he has discovered the special sauce his rivals haven’t. Luxe, which has raised $25 million and is seeking tens of millions more, has segmented the business among workday, evening and overnight customers. That means the same parking spot can be rented out several times a day. Lee says the business requires a lot of cash and acknowledges that if Luxe were smaller or less well-funded, "we'd be screwed." He says Luxe’s size gives him the clout to negotiate cheaper rates with parking providers and that the company is adept at managing costs.

But behind the curtain, the company is quietly pushing more of its business away from one-off, on-demand users. The app prompts drivers to say what time they want their car back; if they still opt for on-demand service the app pushes them to request the car 15 minutes ahead of time in San Francisco and a full hour ahead of time in New York. More than half of returns are now scheduled, according to a person familiar with the situation, and much of the business comes from monthly subscriptions.

Scheduled parking makes a lot of business sense because Luxe can more easily predict demand and cut costs by parking cars further away in cheaper parking garages. But that kills the dream of on-demand parking, says Forrester Research analyst Sucharita Mulpuru, essentially turning the business into "a parking garage that brings your car to you."

Valet Anywhere tried to make on-demand parking work for several months in New York, but founder Robert Kao says “there was no way” to charge a customer more money than it cost to pay for labor and the parking space. When the startup raised the $6 hourly rate to $11, Kao was inundated with mail from angry customers vowing never to use the service again. “Folks are so price-sensitive," he says. "That was the big shock to me.”

Valet Anywhere dropped on-demand parking and flipped its model on its head. Instead of targeting commuters coming into Manhattan, it went after city dwellers who wanted parking with occasional access for, say, a weekend in the Hamptons. The subscription plans range from $279 to $1,000 per month—with the cheapest requiring three hours’ advance notice. That means the vehicle can be stored far away, in cheap garages in the Bronx. The company also saves on labor costs since the car rarely needs to be moved.

Kao’s happy with his more stable business, which brings in recurring monthly revenue. As for on-demand parking? Good riddance. “If I had to do it again,” he says, “I wouldn’t.”

(A previous version of this story incorrectly implied that Luxe was moving away from the consumer business.)

Before it's here, it's on the Bloomberg Terminal. LEARN MORE