Public parking is designed to ensure spots are available. This is why many cities have meter parking with a 2 hour limit; to discourage people from parking on the street all day long (there are garages for that).
This type of app encourages people to occupy spots by camping out in them and selling them to the highest bidder. If your goal is to ensure parking spots are available to people that need them for short-term parking, allowing that behavior seems counter-productive towards your goal.
EDIT: Or is the problem you are referring to what the app is doing? I read it as that the app wasn't the problem, but that the underlying idea of paid parking which it sits on top of is wrong, but I realize that it might also be read the other way.
More likely, cities will find a way to auction off parking spaces, in real time, as a source of revenue. This can be zoned to high-congestion / high-activity neighborhoods, like anything else. Not much different from parking meters, in basic conceptual terms (which I've heard also weren't so popular when they were first introduced). Or congestion pricing.
But the idea that people "own" the parking spaces they're sitting on, and have an inalienable right to extort as much money as they'd care to fancy from the next hapless driver -- let alone that the "market" for this kind of an activity has an inalienable right to exist (just because someone created an app for it) -- is, well, very Silicon Valley.
I'm not saying that it's the best solution, but it does seem arbitrary to have some private goods rationed by price and others rationed by lottery. Just because "that's the way it's always been". In any case this app or rather the people using it don't rightfully own the parking spaces, but they are taking advantage of a market inefficiency.
Reality: This will harm middle class people who live paycheck-to-paycheck, not struggling families.
If the company is doing business in California and has assets or income streams in or coming from California then there are probably avenues for enforcement.
And if that wasn't the case, there wouldn't be an issue here in the first place.
The article says it was built in Rome, Italy.
OTOH, any company doing business in the San Francisco probably has assets or income streams that are going to be subject to the jurisdiction of courts through which either the City and County of San Francisco or the State of California could act to enforce fines.
People who live paycheck-to-paycheck wouldn't be able to afford this. If it becomes very popular, those without disposable income may be unfairly abused by the system. Till now, finding a spot has been random lottery. Pay-for-privilege will leave struggling families out in the cold (perhaps literally).
Yet to punish a company so harshly before the phenomenon has proven to be a problem in practice seems draconian. The gap between theory and reality is large. Something that's harmful in theory can sometimes prove itself advantageous in unexpected ways.
And what if the company wasn't based in California? Would there be any recourse for California to exert regulatory pressure over a company based in another state? Pg's quote "if you outlaw the future, it will just happen elsewhere" seems relevant. Maybe it's a matter of time until this app catches on in other large cities. Nobody likes spending ~30 minutes searching for a parking spot.
But it's difficult to shake the feeling that the whole concept is, well, douchey. I dislike that word, but it seems quite applicable here. Sitting in a parking space for longer than you need it in order to personally profit is pretty much the definition of a dick move. Yet should that argument alone be sufficient reason to outlaw the entire market? I don't know.