With California Assembly Bill 5 (AB5) all over the rideshare news, we have received many questions from drivers asking what it would be like to work as an employee, not an independent contractor, for Uber or Lyft. Senior RSG contributor Sergio Avedian covers a new rideshare startup called Alto that touts its driver-employees as a positive alternative to the independent contractor model, and what this all looks like for drivers, below.
We have written numerous articles regarding AB5 on RSG the past few months and how it could change the landscape for independent contractors (ICs) and employee status of gig economy workers. Today, I’ll be covering a startup rideshare company called Alto out of Dallas, Texas. They may just prove that having drivers as employees might not be such a bad thing and be profitable as well.
What is Alto?
Alto is a new members-only rideshare company out of Dallas, Texas. Will Coleman is the founder and CEO, and his business partner, Alex Halbardier is the chief customer officer of Alto; both hail from Dallas. The company is partially locally owned and partially venture capital backed, with $14.5 million raised in January of 2019 to get the operation off the ground. They both think they have the formula to disrupt Uber and Lyft.
With a members-only subscription model, Alto will use $14.5 million in funding to scale up a service that its founders say puts safety and service first. Alto feels like a concierge service for the passengers who would pay a premium for more individualized service. Its main backers are Road Ventures, a European fund that invests in the transportation sector, and Frog Ventures, the venture arm of global design firm Frog.
The service launched in Dallas in early 2019 and has already handled more than 4,000 members who took over 10,000 rides. The elevated, on-demand rides company has expanded its North Texas coverage to include Plano, Coppell, Valley Ranch, Irving, Frisco, Farmers Branch and Addison.
Is Alto Any Different From Uber or Lyft?
The short answer is YES! Alto’s business model differs from traditional ridesharing companies. Instead of hiring independent contractors (ICs) the firm employs its drivers and manages a dedicated fleet of SUVs. It also gives more control to its customers, something Uber has copied over the past couple of months with new additions like Uber Quiet. Alto members use an app to control the in-car experience, from music to climate to quiet rides where the driver and the passenger do not converse (like Uber’s Quiet mode).
At the moment Alto is only offering rides in Dallas and surrounding areas, but they have national ambitions. They don’t think they need to have various platforms such as Pool, X, XL, Select, Black and SUV like Uber does. They are happy to separate themselves from the pack and offer an alternative to Uber and Lyft passengers.
Alto does not offer rides for 24 hours a day like their rideshare competitors, although their customer service operations are around the clock. Here’s their current weekly schedule:
- SUN 8:00am – 10:00pm
- MON 4:30am – midnight
- TUE 4:30am – midnight
- WED 4:30am – midnight
- THU 4:30am – midnight
- FRI 4:30am – 1:00am
- SAT 8:00am – 1:00am
Alto also offers a monthly subscription model for its riders, like Uber and Lyft has done over the past couple of months. For a minimal charge per month, Alto passengers will receive all the benefits below.
Alto has a few levels of subscription offerings. The base membership fee is $12.95 a month. This gives customers access to Alto’s service at a 30 percent to 50 percent discount vs. ridesharing competitors’ higher-end offerings. There are also subscription offerings where users can subscribe to 15, 30 or unlimited rides for $349, $549 and $899 a month, respectively. Alto builds an 18% service charge into every ride so that tipping is not encouraged or expected. This charge covers the employee related expenses.
Independent Contractor vs. Employee Model
The most glaring difference between Alto and the existing rideshare companies is that Alto hires its drivers as employees instead of ICs like Uber and Lyft does. Did Mr. Coleman see the writing on the wall regarding the gig economy and chose this path for Alto? With AB5 looming on all the gig economy companies, Uber and Lyft will be in jeopardy to continue their operations in California with an employee driver model.
Alto’s website has the usual sign up pages for drivers, but the vetting of each employee seems to be a lot more extensive than Uber and Lyft. Each Alto driver is interviewed, fingerprinted, background checked and drug tested. Additionally, drivers go through rigorous training, which includes a defensive driving course, customer service training and in car and on the job training. Additionally, each new driver has a supervisor shadowing them on rides with real customers before becoming an active driver.
It sounds a lot like becoming a taxi driver.
But What About Driver Pay?
As far as compensation for the drivers, since they are employees, they get paid on an hourly basis. I am not certain if drivers will enjoy the freedom and flexibility as they do with Uber and Lyft, but they are employees with full benefits and protection of labor laws.
Is this something Uber and Lyft drivers will gravitate to when Alto starts expanding into different states? I would say that with discontentment running rampant in the rideshare driver community, I bet Alto will not be short of driver candidates.
The following is my Twitter exchange with the CEO and founder, Will Coleman.
In an article published on June 19, 2019 in Plano magazine, Coleman says, “Alto means ‘higher’ or ‘elevated’ and that’s exactly what we want this experience to be for our members. Alto is an elevated, on-demand ride service that’s unlike anything you’ve experienced before. Between the safety standards we enforce with our drivers and vehicles, the amenities we offer in each of our cars, and the service you can expect during each of your Alto rides, your on-demand ride experience will never be the same again.” He sums up Alto’s differences in four categories:
Alto’s founders know that riders want to be secure above all else. They’ve found that women are half as likely as men to use rideshare apps, and 75 percent of the women who don’t use them say it’s because of safety. So with Alto, not only are the drivers carefully selected, vetted, and trained, but each company owned and five star safety rated car is branded with the Alto logo so you can be sure you’re stepping into the right vehicle (it will also light up upon arrival). Cloud based cameras capture both interior and exterior video, so there’s a record of each ride for everyone’s peace of mind.
Want a quiet ride or hoping to get some work done during the trip? Let your driver know with a push of the “do not disturb” button. In-app lighting, temperature, and music controls are also at your fingertips, meaning you set the ride’s vibe. Each Alto car is also stocked with bottled water and umbrellas for your convenience.
Since Alto itself is in charge of the cars, rather than individual drivers who may or may not be nearby, it makes sure the fleet is strategically spread out across the city. This results in a consistent wait time of 10-15 minutes each ride, no more sprinting out of the restaurant before your driver zooms away or endlessly waiting for a car that may never show.
You might have noticed that consistency is Alto’s theme, and that extends to its payment options. It costs $12.95 per month to access the service, which then unlocks fares that are 30-50 percent lower and per-ride pricing that never surges. Membership size is carefully controlled so that you always receive the highest level of personal service and amenities.
My Take on the Viability of Alto
Are the above differences going to be sufficient for Alto to directly compete with Uber and Lyft? Is Alto even competing with Uber and Lyft’s higher category platforms or are they starting a new category? Is Alto truly on to something? I am not sure the scalability of this business will be as rapid as Uber and Lyft, but I certainly hope Alto has profits in mind. Time will tell and I wish them the best.
Drivers, would you work for a company like Alto where you’re an employee (and therefore get benefits) but also lose some flexibility?
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-Sergio @ RSG