A startup’s alternative to Uber: Employing its own drivers

The car’s driver, Bob Arndt, was working for Alto, a ride-hailing company, and relying on its app’s directions. But somehow the airport had gotten set as both the pickup spot and the destination, prompting him to start driving back to where the ride had started, before both driver and passenger realized the mistake.

For an Uber driver, it would have been a major setback, potentially altering the amount of money the trip would pay. But Arndt just shrugged – it was no problem – and began navigating toward downtown. His earnings that night didn’t depend on where he was headed.

That’s the main allure of Alto, a Dallas-based transportation startup founded in 2018 that promotes itself as a safer, higher-quality version of Uber or Lyft, with drivers who are thoroughly vetted, employed by the company and paid hourly.

It’s a drastic departure from the business model espoused by the dominant ride-hailing companies, for which drivers are independent contractors who set their own hours, drive their own cars and are responsible for their own expenses, without a minimum wage or health care benefits.

With the gig worker system increasingly under fire nationwide by labor activists who contend it exploits and underpays drivers, Alto thinks its approach – in some ways a high-tech version of a black car service – could hold growing appeal.

Discover the stories of your interest

“We are a culture of drivers – we would never say things like our competitors have, like drivers are noncore to our business, or call them partners,” said Will Coleman, a 39-year-old co-founder of Alto and its CEO. Alto, with 2,000 drivers in five major cities, under 2 million total rides and just $120 million in funding so far, is far smaller than either Uber or Lyft. But executives think the company, whose 2023 revenue has grown 30% from a year ago, can carve out a niche in the high-end ride-hailing business, competing with the premium lines of Lyft and Uber.

Labor groups and Democratic-led state and local governments have taken aim at the gig driver model in recent years, though the companies have beaten back efforts to mandate a minimum wage in Minnesota and to classify drivers as employees in California. Alto’s growth, along with other fledgling ride-hailing businesses like Revel’s employee-driven Teslas in New York City, could show there are viable alternatives.

“If Alto succeeds, there will be substantial pressure on Uber and Lyft to change to an employment model, because Alto will have proven the concept,” said Seth Harris, a law and policy professor at Northeastern University and former labor adviser to President Joe Biden. Uber has turned to a similar model in other parts of the world when required to do so, contracting with fleets that employ drivers in countries like Spain.

But it’s too early to say whether Alto can succeed at a scale that challenges the dominant model. It’s an expensive service, and it has struggled recently.

In July, Alto pulled out of the San Francisco Bay Area, just a year after beginning to offer rides there – a decision that Coleman attributed to San Francisco’s not yet returning to pre-pandemic levels of commuting. The company laid off several dozen corporate employees in August and has delayed plans to expand into new cities to focus on growth in its current markets: Dallas, Houston, Los Angeles, Miami and Washington.

Whether Alto’s approach is truly a better deal for drivers is also up for debate. Its driver pay, which varies by city, is not especially high. In Dallas, where the minimum wage is $7.25 per hour but many entry-level jobs pay twice that, Alto drivers average $15 to $20 per hour. During a visit this year, many Alto drivers there said their earnings were decent but not exceptional. In the months since, several of them left the company.

While Uber drivers can start and stop driving at will, Alto drivers sign up for shifts. They clock into work and pick up their company cars, leased by Alto, at a dispatch center. But they don’t have to pay for gas or use their own vehicles, as Uber drivers do, and the company offers 401(k) matches and contributions to health care plans.

Uber and Lyft argue that their more flexible model is preferred by drivers. “We’ve heard over and over again that they want to remain independent contractors,” said Sona Iliffe-Moon, a Lyft spokesperson.

Particularly strategic Uber drivers, who accept only more profitable rides, are likely to out-earn Alto drivers before accounting for expenses, said Sergio Avedian, a Los Angeles driver and contributor to The Rideshare Guy, a blog that provides tips to gig drivers. But for gig drivers who have grown frustrated with the fluctuation in earnings, he said, Alto could be a reliable alternative.

Amanda Lee, who has driven for Alto since 2021, said the job offered more security than independent contractor work she had done for delivery services like Shipt and Favor.

“With Uber and Lyft, and gig-based things, you’re working, working, working, because time is money,” Lee, 46, said. At Alto, “even if we have a down moment, we’re still getting paid, so there is that consistency.”

The idea for Alto came from Coleman’s experience as a partner at consulting firm McKinsey, where he spent a decade advising transportation companies like airlines, car rental services and hotel chains, including on how to navigate the rise of Uber and Lyft.

Coleman said he had eventually realized that the gig driver model was “broken for pretty much everyone,” leading to inconsistent experiences for passengers, worsening traffic and low wages for drivers. He thought there was room for a brand with more predictable service that would appeal especially to business travelers, families and women who might feel unsafe in a stranger’s car.

With its sleek gold branding and Buick Enclaves, Alto tries to convey a high-quality experience. Its drivers, dressed in matching uniforms, are akin to chauffeurs, opening car doors and offering water to passengers. Because they are paid hourly, they don’t mind waiting if a rider wants to make an impromptu stop.

The trade-off for premium service is premium pricing. The 32-minute, 21-mile trip from the airport to downtown Dallas cost $81; an Uber ride would cost about half that much. Alto customers can buy a $13-per-month subscription to save 30% on each ride.

Alto tracks its drivers remotely from operations centers through cameras in their cars – they do not record audio – so it can follow drivers’ eye movements and monitor whether they are becoming distracted on the road. Alto also uses data to predict traffic and estimate demand so it can direct drivers via earpieces to wait in areas they expect to be busy.

Jonathan Campos, Alto’s chief technology officer, said the ability to place drivers with precision was an advantage over Uber and Lyft, which have to nudge independent contractors into action by offering surge pricing.

“We can focus on how to properly place cars, not just hope that drivers get there,” Campos said.