“Park” Your Money Here?

I was going to a Blackhawks game at the United Center recently and pulled up to my usual parking lot only to see a sign that said "parking passes only" when I had always paid with cash. When I subsequently went online to find how to get a parking pass for the next game, there was a push by companies like ParkWhiz and SpotHero to fulfill my need. Wow, I thought, apparently parking is another business in need of disintermediation, with startups inserting themselves in the transaction stream and offering to facilitate in return for a slice of the total. I'm fairly skeptical that these third-parties have a winning business model because of the volume that has to pass through them in order to generate a substantial revenue stream. For instance, in order to generate $100,000 in revenue by skimming 1% of transaction volume, you have to have 100,000/.01 = $10MM in sales flowing through the service! (I ran this type of analysis years ago at a startup and we got scared off by the money we'd have to spend to generate that level of spend…) Unless you're Mastercard or Visa, it will be tough to consistently force through that volume.

Let's think about this parking example specifically. United Center capacity is about 20K, because of public transportation and multiple people per vehicle, assume a ceiling of 10K cars at each game for simplicity in math. How much can one of these facilitators earn? If they are involved in 10% of transactions, obviously a very high estimate, at an average of $30 to park, that would mean they would earn $7,500 per event if they are able to skim 5% from each transaction. (Not likely the parking lot owners will put up with that for long, nor do they need to do so to fill their spaces… location location location!) If the venue puts on events 365 days per year, they could earn... almost $600K from that venue alone. Of course, there aren't that many events, and they probably don’t facilitate 10% of transactions, so more likely revenue generated would be much lower. And that is if there is only one player chasing it.

Now expanding that to look at daily parking… According to this site, there are 450 parking lots in Chicago, assume (generously) that they have 1,000 spots each, for 450K total spots. Using average daily parking rate of $30,200 business days per year, and assuming these parking businesses facilitate 5% of parking needs at a 5% commission, it suggests total revenue available of $6.8MM for business parking. So double that to account for weekends and evenings, and you're around $15MM. Assume further that they cover the top 20 markets at the same level (again, generous), that suggests a ceiling of around $300MM in revenue opportunity, to be split across multiple players. Hardly the stuff of VC dreams. And yet ParkWhiz has been a darling of the entrepreneurial set in Chicago for some time, and according to Crunchbase, has raised over $2MM to date. SpotHero has raised another $2.5MM. Hopefully these investors are seeing something in the revenue model that isn't evident from my quick back-of-the-envelope analysis.

(Somehow I feel like I’ve done this kind of analysis in a previous post. Oh well, bears revisiting every now and then.)

Posted by jkeenan on 02/04