San Francisco Chronicle - (Sunday)
Startups eye void if Uber, Lyft exit state
It wasn’t that long ago that startups positioned their companies as the “Uber of X,” pitching that they had the same massive growth potential as the ridehailing company.
Now even some companies competing with Uber on its transportationondemand turf are stressing their philosophical distance from the San Francisco company. They’re pointing to the different tactics they adopt in the fraught area of how drivers and couriers relate to the companies that bring them business.
Uber and hometown rival
Lyft both classify drivers as independent contractors. California is suing them, saying the drivers should be employees under AB5, the state’s new gig work law. Uber, Lyft, DoorDash, Instacart and Postmates are seeking their own permanent exemption to AB5 with Proposition 22, a November ballot initiative that would keep California drivers and couriers as independent contractors. The gig companies say that an employment model would devastate their businesses. Uber and Lyft have threatened to leave California, or curtail service, if forced into an employment model.
At least three startups, Alto, Dumpling and Arcade City, plus one established ridehailing company, Wingz, say they comply with AB5, using either an employment model or a true independent contractor approach. They are revving up to pounce if a ridehailing void opens up. Their approaches shed some light on the employee versus contractor debate — and on how Uber and Lyft might need to adapt.
There are other companies that say they comply with AB5. If Uber and Lyft leave California, these companies are revving up to pounce.
Alto: Texas ridehailing startup Alto hires drivers as employees and maintains its own fleet of Buick Enclave sport utility vehicles, rather than having drivers use their personal cars. It said those approaches promote safety, consistency and quality.
Backed by $20 million in venture capital, it started operating in Dallas a year ago and now is expanding to Houston.
The Uber and Lyft brouhaha accelerated Alto’s plans to enter the California market, which it hopes to do this fall, starting in Los Angeles and then San Diego. Service in San Francisco will probably begin in 2021. However, state regulators said it has not applied to operate here, a process that can take 90 days.
“We never expected or needed Uber (and) Lyft to exit a market for our business model to work,” said Alto CEO Will Coleman, a partner at consulting firm McKinsey & Co. before founding the startup in 2018. “Nonetheless, should they exit the market, that does create a pretty significant void that we hope we could at least partially fill.”
Having drivers be employees allows for more training and oversight, he said.
But there are drawbacks. Rides cost more and take longer to arrive — both issues that Lyft and Uber have identified as impediments. Coleman said riders are willing to accept those tradeoffs in exchange for higherquality service.
Alto costs about 40% to 50% more than the cheapest Uber or Lyft rides and about half as much as the rivals’ premium services, Lyft Lux and Uber Black, Coleman said.
Rather than matching its rivals’ promises of almostimmediate rides, Alto says it will fulfill ride requests within 10 to 15 minutes. Ultraquick pickups require a glut of drivers on the street, which promotes congestion and isn’t economically feasible if they’re employees being paid to circle, Coleman said.
Alto’s employee drivers can’t have maximum flexibility — another big sticking point Uber and Lyft often raise — but they still have some.
Alto drivers who choose to work full time are guaranteed 40 hours a week in exchange for letting the company pick their schedules, Coleman said.
Its parttime drivers get to pick when they work, but their desired time shifts may not be available. The company publishes a schedule 10 days ahead and parttimers can select open shifts, often up to the same day.
Dallas drivers earn about $15 an hour plus benefits. They have no car expenses, since the company covers gas, maintenance and insurance for its fleet.
Alto had 200 Dallas drivers before the pandemic. When business plunged during shelter-in-place orders, it added deliveries to keep its fulltimers employed.
“We’ve got to get to California, because we want to be part of this broader debate around employment, treating drivers fairly, consumer impact,” Coleman said.
Arcade City: Austin’s Arcade City provides tools and support for drivers to create and run their own ride cooperatives, which it calls guilds. Each guild can determine its own pricing and structure. “We want to help driverentrepreneurs bootstrap new networks in every city,” said founder, CEO and sole employee Christopher David, a former Uber driver. Its tools include payment processing and an app for ride booking and peertopeer connections among drivers. An Arcade City guild, now with 150 drivers, has operated in Austin since mid2016 when Uber and Lyft pulled out for a year. Those drivers charge a $10 minimum and $2 a mile, more than the ridehail giants. David said it has handled about 500,000 rides in three years.
“If there was an abrupt withdrawal (from California), we could meaningfully organize some percentage of drivers, like we did in Austin,” he said.
Rides would have to happen under individual or corporate entities that comply with state regulations for ridehailing. Working with existing taxi companies might be one route, he said.
The California Public Utilities Commission regulates what it calls transportation network companies. David hopes to get a license for such a company, but obtaining the required $1 million insurance coverage depends on fundraising. The company has raised a bit over $1 million.
AB5 is not a roadblock, he said: “We’ve solved labor considerations by going in the opposite direction, actually empowering drivers to be entrepreneurs.”
In Austin, the transportation department sought to cite him for illegally running a transportation network company, but he said it was settled amicably.
Brian Hill, an Oakland ridehail driver, said he’s working to organize a guild here. He knows it can’t yet be official, but thinks drivers could give rides to friends in exchange for donations. “People want something new,” he said.
Dumpling: Located in Berkeley and Seattle, Dumpling provides tools to help people run their own business doing grocery shopping — and it’s now adding tools for offering scheduled rides.
Dumpling’s drivers and shoppers are independent business owners who set their own rates and find their own clients, it said.
The company grew out of a project to advocate for the working class, said cofounder and coCEO Joel Shapiro. After eliciting thousands of stories from gig workers about their gripes, it decided to create a way for them to have their own companies, starting with those who did grocery shopping and delivery through Instacart.
Dumpling created a financial system to allow shoppers to pay for the groceries and bill customers, for customers to enter their grocery lists, and for shoppers to promote their businesses. “Food is personal,” Shapiro said. “Clients are looking for a relationship, a person who gets to know them and their preference, so it isn’t a roll of the dice every time.”
Its 2,000plus shoppers set their own prices, manage their own schedules and work with their own customers. Shoppers pay $20 to sign up, plus credit card processing fees. Clients pay 5% of their order, which is how Dumpling makes money.
Dumpling is developing similar technology for drivers who want to start ride businesses. “We want to support drivers who are scared, who don’t know what to do if Uber (and) Lyft pull out,” Shapiro said.
It’s offering test versions of its tools for ride scheduling and payments free for 60 days. Drivers must validate that they’ve handled their own commercial licensing and insurance. In California, they need a transportation charter permit, plus significant insurance coverage.
Dumpling drivers and shoppers “are in complete control,” Shapiro said. “They decide what they want to do; there are no carrots or sticks to reward/punish them.”
Wingz: One of the earliest ridehailing companies, Wingz offers scheduled rides, mainly to airports, from regular people in their own cars. Wingz has classified them as independent contractors — but now is switching to employment in California to comply with AB5.
The service is small. Wingz operates in the Bay Area, Los Angeles and San Diego and a handful of other cities nationwide. Its Bay Area drivers numbered in just the dozens before the pandemic.
“A driveremployee model is actually something we want to embrace,” said Christof Baumbach, CEO and cofounder. “We think it allows us to have control over the drivers, to tell them what needs to be done.”