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On the waterfront: Debate rages over whether Sidewalk Labs' Toronto plans are about tech or real estate and whether privacy and the role of democracy are imperilled
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By JOSH O'KANE
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Saturday, May 18, 2019 – Print Edition, Page B10


Looking into a crowd of local politicians, urban planners, students and media in Toronto on a warm October day, Prime Minister Justin Trudeau praised the "visionary approach" of former New York deputy mayor Dan Doctoroff, the chief executive of a littleknown company with a very well-known owner.

It was 2017 and Sidewalk Labs, a subsidiary of Google parent Alphabet Inc., had just been announced as the winning bidder to help a government agency called Waterfront Toronto develop a small chunk of land dubbed "Quayside" on the city's long-neglected eastern waterfront.

Standing in front of a row of Toronto, Ontario and Canadian flags - representing the three levels of government that manage Waterfront Toronto - the Prime Minister turned to address Eric Schmidt, the former chairman of Google and then-executive chairman of Alphabet. His smile widened. "Eric and I have been talking about collaborating on this for a few years now," he said.

For some critics, Mr. Trudeau's comment, which deviated from prepared speaking notes obtained by The Globe, left the immediate impression that the fix was in for Alphabet all along.

Less than an hour later, then-Waterfront Toronto CEO Will Fleissig tried to put the genie back in the bottle by clarifying that Sidewalk had been selected after careful consideration of several bids.

Waterfront Toronto has stuck to that message ever since. But Mr. Trudeau's words have etched themselves in the psyche of the project's growing band of critics as evidence that the effort was rife with problems from the beginning.

Mr. Trudeau unveiled a plan that day for Sidewalk Labs and Waterfront Toronto to turn a 12-acre site at the foot of Parliament Street into a digitally-connected neighbourhood of the future. "A world leader in urban innovation," Sidewalk Labs would help turn Quayside into "a test bed for new technologies," Mr. Trudeau explained, helping to "build smarter, greener, more inclusive cities, which we hope to see scaled across Toronto's eastern waterfront and eventually in other parts of Canada and around the world."

In physical terms, Sidewalk proposed what it calls a "radical" mix of offices, retail, residences and "maker spaces" with plenty of affordable housing. It offered to move Google's Canadian headquarters to the waterfront. It committed US$50-million to build a plan and conduct public consultations on Quayside. Some design details, such as using wood construction for tall buildings, were also on trend.

But what made Sidewalk's proposal unique were the inventions that conjured images of the Jetsons. In a nearly 200page document, Sidewalk described intersections that could be laced with sensors to recognize pedestrians with disabilities and extend crossing times. Buildings could be powered by artificial-intelligence software to heat and cool only when necessary, reducing energy costs across the community. Freight and waste could be transported underground, freeing up city streets.

By arranging buildings carefully to produce comfortable "microclimates" - with sheltering canopies and heated pavement - Sidewalk said it could double the daylight hours in which it is comfortable to be outside in Toronto's climate. Self-driving buses could replace private cars.

Behind all of these "smart city" inventions would be throngs of sensors installed on everything from traffic lights to garbage bins. Sensors pick up data, data can form patterns, and patterns can reveal unexpected aspects of city living that could be made easier with even more technology. Cities are ripe for this kind of innovation, and if everything went according to plan, Toronto could be branded as a world leader in city building.

But the project would also generate vast amounts of valuable data. The big question: Who would benefit most from the redevelopment - the city and its residents and businesses, or the disruptors behind it?

Much depended on the exact terms of the deal with Sidewalk. In unwittingly creating questions about the fairness of the process that gave Alphabet the project, Mr. Trudeau's words became the first misstep in a project that has drawn global attention and scrutiny.

In the 19 months since the announcement, missteps and gaffes have multiplied, plans have been scaled back and there are calls for the project to be cancelled and the procurement process restarted. A growing number of people close to the original decision have come forward with concerns, and more than a half-dozen senior leaders and advisers have resigned from Waterfront and Sidewalk, or been fired in direct connection with the project.

Concerns about privacy and what Sidewalk would do with the data - which any tech critic would have about any smartcity proposed by any company - have only grown over time. A final plan still hasn't been made available to the public or Waterfront's board, which is scheduled to vote later this year on whether the project will actually go forward. If they approve it, all three levels of government will still get a final say. Shifting plans about the scope of the project, meanwhile, have also raised questions about the company's endgame.

Within Alphabet, Sidewalk is tiny - a risky but promising investment for one of the world's richest companies. But Google and its owner have built an extremely profitable business based on gathering information about people and using it to sell advertising targeted at them. With access to huge pools of data from Quayside, followers of the company believe, it will surely find new ways to create valuable new products. But is what's good for Alphabet good for the citizens of Toronto and the Canadian tech sector? Many governments over many decades have tried to transform Toronto's waterfront into a go-to destination.

The Toronto Waterfront Revitalization Corp. was created by Ottawa, Ontario and Toronto in 2001 to, in part, try to resolve jurisdictional disputes between them.

Tasked with reimagining 2,000 acres of Toronto's downtown lakeshore, the agency now known as Waterfront Toronto has led the rebuilding of Queens Quay and spurred developments such as the Canary District near the mouth of the Don River.

At the foot of Parliament Street sits an underused area that Waterfront Toronto largely owns. According to an appraisal of the Quayside lands by MacKenzie Ray Heron & Edwardh provided to The Globe by former Waterfront board member Julie Di Lorenzo, the parcel's market value could be as much as $570-million.

When a San Francisco-area real estate specialist named Will Fleissig was named CEO in 2016, management wanted to try something new with the land. They floated the idea of a pilot project to attract private investment to generate new approaches to urban planning, likely with new technologies baked in.

The right partner might also be offered a chance to expand across the eastern waterfront if Quayside was a success. "Presumably, if we were successful, we could share those lessons with our governments, with other cities across Canada and potentially the world," Mr. Fleissig said in an interview.

Before the procurement process for Quayside opened, Waterfront explored the marketplace for potential bidders - including Sidewalk, thanks to a Waterfront employee who used to work in New York and knew its leadership. Early on, however, Mr. Fleissig raised concerns that have continued to dog the project. "Google has purportedly told other candidate communities that they want to control ALL data in this demonstration project area. Could present privacy issues and control issues," he wrote in an internal e-mail in July, 2016, according to a later report by Ontario's Auditor-General, Bonnie Lysyk.

The late 2018-report looked at how Waterfront Toronto sought bidders, and suggested that a handful of them - singling out Sidewalk - were given an advantage when they received some information before the request-for-proposals process opened in March, 2017.

Six contenders eventually submitted bids, and three were named finalists. Staff and outside experts selected Sidewalk as the winner by mid-September, 2017, pending approval by Waterfront's board.

It is made up of directors appointed by the federal, provincial and municipal governments, and it has a real estate-focused subcommittee.

A board meeting scheduled for Oct. 20 was pushed up to Oct. 16 so that, if directors approved a Sidewalk partnership, it could be announced the following day with Mr. Trudeau as well as Alphabet and Sidewalk executives in attendance. The event would fit all of their schedules.

Four sources familiar with the process, to whom The Globe granted anonymity because they were not authorized to speak publicly, describe the week prior to the vote as extremely rushed, giving board members insufficient time to review details for such an important project. The Auditor-General's report offers further context, quoting an internal email that said the board was being "urged - strongly" by the federal and provincial governments to approve the agreement.

The board voted to proceed with the agreement on Monday, Oct. 16. Three members were not available to vote and Ms. Di Lorenzo, who has since become an outspoken critic of the project, was the sole dissenting director. She has since called the rushed vote "unconscionable."

Another person close to the decision said that the directors were not equipped to deal with the depth of technical issues so quickly. Regarding these concerns, Waterfront's chief development officer, Meg Davis, said "no one was compelled to vote in favour, and yet there was only the one dissenting vote."

By 11 a.m., just 25 minutes after that meeting adjourned, the Prime Minister's communications staff had already sent Mr. Trudeau's remarks for the next day's announcement for policy-staff approval.

The Prime Minister's Office says Quayside's procurement was operated independently of Ottawa. However, an undated memo from the Privy Council Office obtained through an Access to Information request shows it had a strong interest in Sidewalk winning. A staffer wrote that such a result "complements federal efforts to grow Alphabet/Google partnerships and operational footprint in Canada."

W With the partnership agreement kept under wraps, the first nine months of the Quayside partnership left the public with a number of questions about the data that future residents of Quayside would generate. Privacy is an obvious concern, though both Sidewalk and Waterfront have promised to go beyond the letter of the law.

But data these days is also money. If Sidewalk wanted to load this new community with sensors, how might all that data get used?

Some smart-city technologies are developed by cities themselves, such as Barcelona's apparkB. It uses ground sensors to collect data to identify empty parking spots and directs drivers to them. The goal is to reduce emissions and it has added to civic revenue with an extra 4,000 parking permits a day.

In Toronto, a small Kitchener-based company, Miovision, has supplied technology that collects data about people, bikes and traffic going through intersections. It has been used to measure traffic along King Street during a pilot project that persuaded city council to make the road a dedicated transit corridor for streetcars - while at the same time helping make Miovision's own technology more efficient.

But Alphabet is not your average company. Its stock market capitalization is approaching US$1-trillion after two decades of digital innovations built on our use of the internet and places we take our cellphones.

Along with Facebook, its main competitor in the digital advertising business, Alphabet has faced scrutiny over its role in allowing misinformation on its platforms (which include YouTube), along with a growing number of privacy breaches that point to lax protection of personal information.

Both companies have vowed to step up efforts to protect data privacy in recent weeks, but for some critics, it's too late. A number of Sidewalk observers worry that the young, Google-affiliated company could bring similar privacy risks to other cities.

"Any time that there have been tough questions about what the role of data is going to be in this place, and how is that going to create value, Sidewalk has turned and run, rather than do the dirty work of engaging with their critics," says Anthony Townsend, author of the book Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia - and who in 2016 did contract work for Sidewalk.

Quayside has also added fuel to a quieter debate over intellectual-property sovereignty. In the early days of the project, Canadian tech leaders began to raise questions about whether it would benefit local companies trying to expand the country's digital economy.

Apart from traditional real estate, much of the neighbourhood's value would be derived from products commercialized as intellectual property, or IP, built off the information all of those sensors would collect on residents.

Pedestrian patterns could yield new predictive stoplight technology for use around the world. Data from heat sensors could inspire someone to rethink window design. Even garbage analysis could reveal consumption patterns to better design supply chains. Companies or agencies that commercialize and license their inventions to other organizations can reap profits for decades.

So who would get the benefit from Quayside - Alphabet or Canada?

No one could get a clear answer at first, since the initial agreement was kept from the public. But within months, several Canadian tech leaders, including BlackBerry co-founder Jim Balsillie, began to speak out about what they saw as a raw deal for the country.

"If we were going to pump billions of dollars worth of oil to a private company, we would probably have a public debate over whether it's fair to give that away for free or try to monetize it to the public benefit," said Kurtis McBride, Miovison's CEO, in February, 2018.

Mr. Doctoroff, Sidewalk's CEO, said that month that the company had a few ideas.

He promised to form partnerships with local innovators and suggested Sidewalk might house data in an independent trust. Such a trust could let third parties submit applications to collect or make use of the neighourhood's data, which would be anonymized to remove information that could be used to identify individuals. Sidewalk formally proposed such a solution months later.

Still, questions linger. Mr. McBride recently warned that citizens needed to think about how to value the data and charge for it as a raw material - especially when Silicon Valley companies such as Alphabet want access to it. Adding smartcity data to their already massive pools of information would make them richer, faster. For smaller companies, Mr. McBride compares it to playing a game of poker with someone who already knows what cards will be dealt.

"If you're the city, you don't perceive the value of your data because you don't see it in the context of all the other data that they have," Mr. McBride said in a recent interview. "You might be inclined to give it away for free, or give it away in exchange for someone paying for your transit. But in the meantime the thing you gave away is worth 100 times to them what it would be worth to you."

O Over the past two decades, Google has turned its core mission - to make the world's information more accessible - into one of the world's most valuable businesses. Through search, e-mail and more, Google set the precedent for monetizing how people move about the internet, improving not only the services themselves but the efficiency of its targeted advertising.

It also has a history of helping people move about the real world, too, most prominently with its mapping software - which it lately has been monetizing with more and more local ads. The company has been working with city data since at least 2005, when it helped Portland develop systems for organizing transit data that now serve as a global standard.

Close to 85 per cent of Alphabet's revenue comes from Google's ad business. Last month, the company's latest quarterly earnings report said Google posted its slowest revenue growth in three years.

With competition for digital advertising growing, the company has long been looking for its next big revenue stream, be it by delivering internet via balloon or curing age-related diseases.

In 2015, the same year Google restructured into the holding company Alphabet, it announced a more direct, deliberate push into cities: Sidewalk Labs. In a since-deleted blog post, Google co-founder and now-Alphabet CEO Larry Page wrote that while many municipalities were adopting individual technologies, "a lot of urban challenges are interrelated," requiring thinking of cities as complex interconnected systems that need big-picture innovations.

Since arriving in Toronto in 2017, Sidewalk staff have made efforts to distance themselves from Google. Sidewalk's head of product, Prem Ramaswami, once joked at a Waterfront Toronto meeting that he had to resign from Google to take his new job dreaming up urban technologies.

John Brodhead, a policy and strategy director, likes to point to a sign at his desk that asks, "Do I look like Google?" The connection between Sidewalk and its parent is more nuanced than that.

Sidewalk's CEO, Mr. Doctoroff, regularly cites Alphabet's "patient capital" as the investment that will drive its ambitions in Toronto.

Google remains Alphabet's chief source of cash, bringing in 99.6 per cent of Alphabet's US$137-billion in revenue last year. Some Sidewalk companies registered in Canada even list a Google leader as a director.

Much of this would lead a layperson to believe that Sidewalk would follow in Google's footsteps as a company that makes money off of technology. After all, much of the company's publicly available response to Waterfront's request-for-proposals was about its "vision" - one that made nearly as many references to "technology" as it did "development - and included ideas as specific as robotic garbage sorting and as sweeping as "enabling the infrastructure to be software-upgradable."

At public speeches and consultations over the following months, Mr. Doctoroff and his team of New York and Torontobased executives have focused more on tech concepts such as relieving parking congestion, and design opportunities such as tall wood-framed buildings, than on specific details about how it would make money for Alphabet.

But after months of public debate over privacy and control of the data the company has gradually but significantly played down the role it, and its own technology, would play in Quayside.

The RFP response opens by describing Quayside as a kind of platform with a sensor-driven "digital layer" to collect data on the neighbourhood in order to learn from it. But a Sidewalk spokesperson said recently that it had "substantially moved away" from that approach.

In interviews with The Globe and in numerous public appearances, Mr. Doctoroff has described new technologies as a distant-third revenue source after real estate development and infrastructure financing.

"The business model here is not founded on the use or selling of data ... it's a real estate development at its core," Mr.

Doctoroff told The Globe the week the project was announced, in October, 2017.

"There may be places where we develop technologies first for this place that can be commercialized elsewhere. We think there are interesting opportunities."

Mr. Doctoroff was forced to get more specific when an internal Sidewalk report to Alphabet obtained by the Toronto Star and The Globe revealed the company had already been outlining a detailed vision that spanned well beyond the Quayside site - including helping to fund transit and other infrastructure in the area. It has even been in preliminary talks with other investors, including Ottawa's Canada Infrastructure Bank.

In return for its investment, however, Sidewalk wrote that it wanted a slice of traditionally city-destined revenues, including property taxes and development fees.

Even at Waterfront Toronto, some of these details came as a surprise. "I would say it wasn't what I anticipated from the RFP," said Waterfront's Ms. Davis.

Mr. Doctoroff says the plan is similar to one he helped design as deputy mayor of New York under Mayor Michael Bloomberg in the early 2000s. It assisted in the redevelopment of the long-dormant Hudson Yards site in Manhattan by attracting investors to buy bonds to finance infrastructure.

"Responding to an RFP, people are looking for ideas of what you might do ... [versus] a plan where you're actually going to be held accountable to it, are two pretty different things," Mr. Doctoroff told The Globe's editorial board. At a Canadian Club event last month in Toronto, he described Sidewalk's strategic shift as "planning out in the open."

But with no final agreement yet in place, skeptics still worry that Sidewalk could walk away with world-changing technologies while Torontonians hand over pieces of the public sphere to a private company. Even to analysts who follow its parent company closely, Sidewalk remains something of a black box.

"Alphabet offers very little information about its various businesses, and investors have continually asked for more disclosure for some of the bigger segments," says Mark Kelley, executive director and analyst with Nomura Instinet, who follows the holding company. "Because even some of their largest multibillion [dollar] businesses are opaque, the smaller segments get very little attention from investors, if any. This likely affords Google the ability to be agile with its smaller segments that aren't under the microscope."

Facing the House of Commons accessto-information, privacy and ethics committee last month, Mr. Doctoroff once again sought to dispel fears. "You have to dismiss the notion that our business model has anything to do with Google's, because it really has nothing to do with it," he said. "We have no interest in monetizing personal information."

S Sidewalk is expected to deliver a draft of a final Quayside agreement by June. Mr.

Doctoroff said it will be "painfully transparent" about the company's business model, which he called "the single most complicated model of all time, because you've got all these different forces that are kind of playing to make this thing actually develop consistent with the aspirations we and Waterfront Toronto, the government partners, have."

Waterfront Toronto plans to make it public within a week of receiving it, kicking off months of public consultation and revisions before its board votes on whether to actually go ahead with the partnership.

Ontario Premier Doug Ford's government reshaped Waterfront Toronto's board last December by firing three directors. It's now expected to take a more hawkish view of Sidewalk's plans. The new chair, developer Stephen Diamond, says he is frustrated with assertions Sidewalk has made without the agency's vetting.

Between the whims of its board and the results of public consultations, even if the deal does go forward, Waterfront Toronto could radically reshape Sidewalk's plans.

Those plans continue to court concerns. An internal progress report last November said the company believes smartphone pioneer Jim Balsillie is orchestrating the majority of negative media coverage and activist opposition to the project.

But many other critics have also raised concerns about the project's origins, governance, potential data collection and privacy implications. They include Toronto's mayor; Ontario's Auditor-General and Infrastructure Minister; federal Innovation Ministry staff; current and former Quayside advisers, including decorated academics; intellectual-property lawyers; the Canadian Civil Liberties Association, which has filed a lawsuit against Waterfront Toronto and all three levels of government.

Those ranks also include some of the world's most prominent technology scholars. Shoshana Zuboff, author of this year's acclaimed book The Age of Surveillance Capitalism - which argues that Google's monetization of human behaviour leaves most humans behind, bastardizing capitalism's initial intentions - now argues that Sidewalk is using data to circumvent democratic city-building.

Ms. Zuboff cites Barcelona as a strong smart-city example. "The whole approach there is: 'We want the advantages of data to improve life in the city, improve the efficiency and livability of the city, improve the economics of the city' - all of the reasons why one would want the smart city" she says. The story of Quayside, she continues, is different. "The pitched battle of surveillance capitalism is in Toronto," she says.

Recently, Ms. Zuboff has joined the ranks supporting #BlockSidewalk, the growing group that's calling for a "fresh start" to Toronto's smart-city quest by cancelling the partnership and building a smart city with policy first. For now, she says, "this is a story of private capital displacing democratic government for the sake of commercial goals."

So far, Canada has no meaningful policies around smart cities. Experts say Quayside has prompted a series of conversations about technology and urban planning that Canadians, and others worldwide, should have. Especially with cities as a new frontier, "technology's not going to stop evolving," says Robert Siegel, a Stanford University lecturer in strategy and innovation who has spent time with Alphabet management for case studies.

Sidewalk's plans have also shifted over time, and Mr. Siegel says, could best be seen as a sign of good faith. Alphabet, he says, is "smart enough to figure out which way the winds are blowing. ... What's the best thing for them ... to talk about putting the 'digital layer' in? It sounds selfish and self-centred and big-brother-y. Or they can say, 'Wait a minute. Let's help this area get developed.' If that happens, the rising tide raises all boats. Technology is still going to happen. And therefore, they will benefit from it."

Mr. Doctoroff, for his part, remains undaunted. "There's been nothing that we have seen nor heard over the course of ... more than a year that ... hasn't convinced us that this is the right place, and that if we can do it here and make it successful and convince people, we together can have a truly, truly historic impact." SIDELINED BY SIDEWALK: WHO HAS LEFT THE QUAYSIDE PROJECT Will Fleissig resigned from Waterfront Toronto in summer, 2018, saying it was a "mutual agreement" with the board's then-chair. But four sources close to the decision said the board was unhappy with his leadership.

THE DISSENTING DIRECTOR Julie Di Lorenzo, the sole director to vote against the Quayside project, quit the Waterfront Toronto board as it signed an expanded agreement with Sidewalk Labs in July, 2018. She left over concerns that Sidewalk was strong-arming Waterfront Toronto over numerous aspects of the project.

THE PRIVACY MASTERMIND Sidewalk hired Ann Cavoukian as an adviser, and long promised to follow a privacy framework she developed as Ontario's privacy commissioner. She resigned over concerns her framework, which is considered a global standard, would go unheeded.

THE TECH EXPERTS Waterfront Toronto set up a panel of tech experts in 2018 to consult on potential technologies for Quayside and elsewhere. Former OMERS Ventures head John Ruffolo, above, left in July over frustrations with a non-disclosure agreement from Sidewalk.

Artificial-intelligence expert Darin Graham quietly left a few weeks later.

In October, entrepreneur and digitalrights activist Saadia Muzaffar resigned, writing that "Waterfront Toronto's apathy and utter lack of leadership regarding shaky public trust and social licence has been astounding."

THE PROVINCIAL DIRECTORS After Ontario's Auditor-General released a report raising concerns about Quayside in December, the governing Progressive Conservatives fired three high-profile, Liberal-appointed directors from the Waterfront Toronto board: interim CEO Michael Nobrega, above, chair Helen Burstyn and University of Toronto president Meric Gertler.

Associated Graphic

A large lot at the foot of Parliament Street and Queens Quay East, currently being used for parking, is part of the proposed site of Sidewalk Labs' Quayside project.

FRED LUM/THE GLOBE AND MAIL


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