How Texas-based rideshare service Alto is taking on Lyft and Uber

Will Coleman, co-founder and CEO of Alto, joined The Final Round to discuss how Alto sets itself apart from competitors by employing its drivers and owning a dedicated fleet of vehicles and what the Uber and Lyft lawsuits in California mean for the rideshare space.

Video Transcript

SEANA SMITH: Let's move onto another story that we're watching closely here at Yahoo Finance. That's Uber and Lyft. They have avoided shutting down in California for now, but their fight is far from over as they do look to keep their drivers classified as contractors.

But some of their competitors have accelerated their plans to move into states like California as a result of this. So here to talk a little bit more about that, we have Will Coleman. He's the CEO and Co-Founder of ride-sharing company, Alto.

And, Will, it's great to have you on the show. Alto is the ride-sharing company-- I want to point this out-- that classifies its drivers as employees. So I'm just curious just to get your thoughts on this battle that's happening between the state of California and Uber and Lyft.

Because Uber and Lyft's argument is that their drivers-- they want total freedom. They want to choose when and how they drive. And they shouldn't have to classify their drivers as employees.

WILL COLEMAN: Yeah. Thanks so much for having me on. You're right. We actually started Alto back in-- in 2017 with an eye towards this likely movement happening, first in California, but we think across the United States.

And so classifying our drivers as W-2 employees was always something that was pretty important to us. We did so because we wanted to provide a-- a better-- we call it Alto. I mean, Alto means elevated, and we're looking to provide an elevated experience for both our passengers and our drivers. For us, that means safety, consistency, and quality of experience. And we find that, you know, drivers-- many of the drivers that are really doing the most work in this space value consistency well above the ultimate flexibility that-- that Uber and Lyft are able to offer through the independent contractor model.

RICK NEWMAN: And, Will, Rick Newman here. So the obvious question is, how is the business model different, especially in terms of expenses. That, you know, the argument on behalf of Uber and Lyft is it would radically change their business model to count all drivers as full-time employees and that costs would go up. And that would, ultimately, affect customers. Is that actually true?

WILL COLEMAN: Yeah, Rick, I mean, first, I just-- I think a lot of people use the term full-time employee. But I think what we're really talking about here is-- is W-2 employees. And you can certainly have part-time W-2 employees. So we've-- we've had both.

About 40% of our drivers are full-time W-2 employees. The other 60% or so are-- actually work for us part-time. They're still W-2, not independent contractors.

So that-- that's just, I think, something important to categorize here. You can still have the flexibility to work less than full-time and be an employee. It happens across our country every single day.

Certainly, the costs do go up. But we say that those costs exist no matter what. Our-- our country has created a set of social nets and-- and processes, you know? We-- we have unemployment benefits, which means that companies pay unemployment insurance in order to cover that.

We have public health care systems. And so when employees are injured on the job, companies pay W-2 or Worker's Compensation in order to make sure that-- that that health care coverage is provided for. So, certainly, it does cost about 20% to 30% more to an employee-- to employ someone than to have them work for you as an independent contractor.

But what we're finding is that, you know, the-- the public is kind of tired of subsidizing a lot of these costs that exist anyway. In COVID, we've seen, you know, a significant portion of Uber and Lyft's drivers go on unemployment, sponsored by states and the federal government. And the companies really haven't paid into that pot at all.

And so we think, you know, it's fine for venture capitalists and maybe even public market investors to subsidize these cheap rides. But, ultimately, we don't think the public is going to stand for it. I don't think my tax dollars should go towards that.

AKIKO FUJITA: Will, given where things stand right now, how much spillover do you anticipate coming in from drivers who are currently on Uber or Lyft? And can you operate at the kind of scale they have been operating in a place like California when you consider the cost structure you have right now?

WILL COLEMAN: Yeah, no doubt, this is a costly business. I mean, the reality is is that transportation always has been and always will be a capital intensive business. It requires two expensive things, vehicles and people. And so Uber and Lyft and-- and, you know, anybody that has entered this market before them, has shown that it's-- it's capital intensive to get started.

To enter a new market, you need to put supply in the market before you even have demand. Nobody is going to stay in a hotel that hasn't been built yet or even book a room there. And nobody is going to fly on an airline flight that, you know, hasn't been scheduled. And nobody is going to take a ride share or a taxi that-- that can't actually come pick them up.

So we do make significant investments to put capacity into the markets that we enter before we have demand there. But we-- we know that that is a cost that we can make sustainable, a return on investment that is great for investors. We've proven here in our first market in Dallas that we can do so profitably. And we're using that experience to go begin expanding to other markets around Texas and into California later this year.

SEANA SMITH: Hey, Will, what-- real quick, we only have about 30 seconds here-- but what does this mean, just in terms of the cost providers? Are you passing this cost along to your riders? And how does it compare to what Lyft or Uber charge?

WILL COLEMAN: Yeah, the rides are-- are a little bit more expensive. Uber and Lyft are raising prices anyway because the-- the prices they charge today are unsustainable. They're not making money on those rides. The most premium products that they offer actually subsidize-- further subsidize the-- the lowest quality products.

Our rides are about 50% less than an Uber Black experience and about 50% more than their lowest cost alternative. It is a little bit more expensive. We also have a premium product, a-- a six-passenger SUV. And we know that, over time, we can at scale even reduce that cost to our customers and serve a broader swath of people with this safe, consistent higher-quality experience by doing the right thing and employing our drivers at the same time.

SEANA SMITH: All right. Will Coleman, CEO and Co-Founder of ride-sharing company Alto. Great to have you on the show. Thanks so much for taking the time to join us today.

WILL COLEMAN: Thanks for having me.