Startups Build Alternatives to Big Gig Economy Companies, such as Uber, Lyft and Instacart
Startups, Dumpling & Alto, hope drivers will take a chance on their alternative approaches to ridehailing.
A recent CNN article highlights two startups, Dumpling and Alto, that are taking radically different approaches towards gig workers than Uber, Lyft and other large gig economy companies, such as Instacart. While the NYC ridehailing industry is unique among US markets in that most drivers are professionally licensed and full-time, both startup models could be adopted here. In fact, I’ve recently spoken to a local startup, which is set to launch a similar model to Dumpling (more on that another time!).
Below, I give a brief overview of Dumpling and Alto and how they are trying to differentiate themselves.
Dumpling: Drivers Create Their Own Businesses
Dumpling essentially wants to disintermediate companies from the thousands of gig workers they rely on by empowering those workers to set up their own businesses. For example, instead of working for Instacart, Dumpling helps someone setup their own grocery delivery business and brand. After the business is setup, it allows that person to build direct relationships with customers and set pricing.
The company’s business model is simple, it charges a $19.99 one-time setup fee, and offers both free and paid monthly subscriptions ($49 or $99 per month) to access to its business tools, such as creating and managing a customized website, business coaching and a pre-funded credit card to shop orders. Dumpling also makes a 5% platform fee that is paid by customers on all purchases with a company card. According to a June 2020 company blog post, Dumpling has helped launch more than 2,000 small businesses across 50 states.
Our ultimate goal is simple: We want to make Dumpling the trusted partner that helps anyone launch, run, and grow their own service-based business. And we want to help those business owners build financial stability and wealth for the long term. - Dumpling
After raising an additional $6.5 million in June (on the back of a 20x surge in grocery order volume), the Company has also now set its sights on ridehailing with Dumpling Drive. The business model will be similar to its grocery delivery platform and is reportedly planning to charge drivers $20 per month. Drivers will be able to set their own prices and build up their own client base (i.e. drivers are assigned a unique ID code, which they can give riders when they logon to the Dumpling Drive App). Dumpling co-founder and co-CEO Joel Shapiro also mentioned the focus would initially be on pre-arranged vs. on-demand rides, which makes sense given the supply and demand constraints a ridehailing startup would initially face.
Robert Prather Jr., a gig worker in Sacramento, told CNN Business that he recently started using Dumpling's grocery app and has started testing out Drive, as well. He set up a Facebook page to market his business, which he says is very much in the beginning stages.
"I'm planting seeds right now waiting for it to grow," he said, adding that Uber and Lyft continue to make up the bulk of his income and that if the companies suspended their services "realistically, I would've had to get a 9-to-5." - CNN
One thing I noted on the Drive website is that it appears the provision of commercial insurance is the responsibility of the driver, which lends the platform to commercially licensed drivers. Uber and Lyft effectively pay for their drivers’ commercial insurance (except NYC), which was a driving force behind the growth of the ridehailing industry.
Alto: Drivers as Employees
Dallas-based Alto launched in early 2019 with a totally different approach to Uber and Lyft, it would employ all of its drivers. The company provides salary, benefits (including health insurance) and sick leave to its roughly 130 drivers (some are full-time, while others part-time). It also owns and manages a fleet of about 65 cars.
While the company only currently operates in Texas, its platform has gained traction and had about 10,000 active members in January 2020 who paid a monthly subscription. Alto is essentially a premium car service (“accessible luxury”), with rides costing about twice as much as UberX (Note: a $12.95 monthly subscription can reduce the per trip price over 30%). The Company also launched a delivery service in March as rides dropped over 90% due to the pandemic. While the premium service undoubtedly makes the service focused on a niche clientele (most customers have household incomes of $100,000 or higher), the higher cost rides also essentially allow Alto to employ its drivers.
According to founder and CEO Will Coleman, 60% of the company’s overall costs are employee salaries and benefits. Coleman said there are several benefits of the employee model, including the ability to screen and train drivers, allowing Alto to create a consistent service standard (see below). In addition, the company also benefits as the driver vetting process helps lowers its insurance costs and vehicle expenses (also driven by buying vehicles at scale).
Alto has tried to stand out with unique touches. Uniform-wearing drivers pick up customers. All rides are in white Buick Enclave SUVs with vanity license plates and a leather interior. Riders can pick music or select “Do Not Disturb," if they have a work call or prefer quiet. And the company borrowed a strategy from high-end hotels by developing a signature scent that drivers spray before each ride. It’s a subtle mix of cypress, vetiver and bergamot. - The Dallas Morning News
Before the pandemic, Alto raised an additional $6 million in funding to expand into another metro area in Texas and California with goals to operate in 15 large US metro areas in 3 to 4 years, according to the CEO. In the CNN article, it’s also interesting to note that the ongoing labor dispute in California could provide an opportunity for Alto to enter the market with its AB5-friendly model.
"We're currently getting more inbound interest from California drivers organically than in cities we're currently operating in," Coleman told CNN Business.
Coleman said some of Alto's driver employees work fewer than 10 hours per week and have "significant flexibility" in choosing when they want to work whereas others work full-time and are guaranteed a certain number of hours in exchange for open availability.
"We want to show consumers there really is an alternative," Coleman added. - CNN
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