On-demand valet parking seemed like such a good idea

Ellen Huet and Jing Cao
Bloomberg News

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

Parking valets working for companies with names like Luxe, Zirx and Valet Anywhere became a common sight in San Francisco, Chicago, New York and other cities. With a few taps on a phone, customers could summon a valet and avoid the hassle of finding a parking spot. 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 Anywhere) are shifting away from the on-demand model. Their retreat is a cautionary tale for scores of startups flogging instant gratification to people.

“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 daily. But Zirx began burning through cash because it had to pay its growing legions of valets, including the time spent 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 in late February. Now he’s selling parking and other car-related services to companies. It’s more predictable because workers typically show up and leave at the same time. And he says corporate customers tend to be less price-sensitive.