Special Report

Breaking down Sidewalk Labs’ decision to abandon its Toronto smart-city project

Prime Minister Justin Trudeau and Sidewalk Labs CEO Dan Doctoroff shake hands at the announcement of the intial framework agreement between Waterfront Toronto and Sidewalk Labs, in Toronto on Tuesday, October 17, 2017.
Prime Minister Justin Trudeau and Sidewalk Labs CEO Dan Doctoroff shake hands at the announcement of the intial framework agreement between Waterfront Toronto and Sidewalk Labs, in Toronto on Tuesday, October 17, 2017. The Canadian Press/Frank Gunn
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In a stunning reversal, Sidewalk Labs has abandoned plans to develop a smart city in Toronto, citing uncertainty in the Toronto real estate market and the global economy. 

“It has become too difficult to make the 12-acre project financially viable without sacrificing core parts of the plan we had developed together with Waterfront Toronto to build a truly inclusive, sustainable community,” said Dan Doctoroff, CEO of the Google sister company, in an open letter published Thursday. 

Sidewalk Labs said it informed Waterfront Toronto of the decision yesterday. 

The decision ends a controversial three-year partnership between Sidewalk Labs and Waterfront Toronto, the organization overseeing the project. The proposed development would have seen the Quayside neighbourhood—former industrial lands between Toronto’s lakeshore and its downtown core—transformed into a high-tech, low-carbon district.  

Here’s what you need to know.

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Talking Point

Google sister company Sidewalk Labs announced Thursday that it will no longer pursue the Quayside project, citing “economic uncertainty” in the wake of the COVID-19 pandemic. The dramatic decision comes almost three years after it first announced its partnership with Waterfront Toronto to build a smart-city neighbourhood on the city’s lakeshore.

What’s next for Waterfront Toronto: While this is not the outcome we had hoped for, Waterfront Toronto offers thanks and appreciation to Sidewalk Labs for its vision, effort, and the many commitments that both the company and its employees have made to the future of Toronto,” Stephen Diamond, Waterfront Toronto board chair, said in a statement.

“Today is not the end of Quayside, but the first day of its future. Waterfront Toronto will continue to seek public and expert input as we make a next generation community at Quayside a reality.”

Waterfront Toronto has spent approximately $16.1 million on the project to date. “This cost is the total over the course of nearly three years of work,” said Andrew Tumilty, a spokesperson for Waterfront Toronto “As Waterfront Toronto remains committed to a next-generation community at Quayside, we view these costs as an investment in the project that will one day deliver innovative solutions to the pressing urban challenges facing Toronto and cities around the globe.”

Waterfront plans to develop the land without Sidewalk Labs, though it did not offer details on what its next steps will look like, such as whether it will launch a new request-for-proposals process or revisit the bids that lost to Sidewalk. 

What’s next for Sidewalk: The firm has spent $50 million on the project to date. Spokesperson Keerthana Rang said the company will redeploy as many of its Toronto-based employees as possible to “other initiatives.”

Sidewalk Labs’ Toronto office is currently closed due to the pandemic, Rang said. “Depending on when it is safe to return, it may continue to serve as an office for our Toronto-based staff, or we may identify an alternative location,” she said. “We have not yet made a decision on that.”

The land dispute: Sidewalk originally proposed developing a 190-acre swath of land along the waterfront, but agreed to pare it down to 12 acres as a condition set by Waterfront Toronto to move forward with the project. Despite agreeing to the scaled-back parameters, Doctoroff raised concerns about the limited scope of the project well before the economic uncertainty triggered by the pandemic. “We didn’t feel we could [reach Waterfront Toronto’s priority objective of a climate-positive district] on 12 acres,” he said in an interview with The Logic in November 2019.

How it came to this: From the beginning, critics derided Waterfront Toronto for giving Sidewalk too much control over the process, while some business and political leaders pressed the organization to strike a deal with the tech company. 

Former Waterfront Toronto CEO Will Fleissig resigned in early July 2018, under pressure from the agency’s board. His departure was the first in a string of high-profile resignations, including Waterfront board member Julie Di Lorenzo, who resigned the same month, citing concerns around the partnership, and two of its digital advisers: John Ruffolo and Saadia Muzaffar.

In June 2019, Sidewalk Labs released its long-awaited Master Innovation and Development Plan for Toronto’s Quayside neighbourhood in the form of a 1,500-page document. Waterfront’s digital advisers later called the plan “frustratingly abstract” and outlined several conditions for Sidewalk to meet to continue with the partnership. 

In October 2019, Sidewalk made significant concessions, which saw the project scaled back significantly.

When Google CEO Sundar Pichai succeeded Google co-founder Larry Page as CEO of Alphabet in December 2019, Sidewalk lost one of its greatest champions. According to Doctoroff, Page was “intensely involved” in Sidewalk Labs’ Toronto efforts, saying the two had weekly video chats, and that Page had surprised the Toronto team with a 2018 visit.

Then in March, the COVID-19 pandemic upended the North American economy. 

As recently as mid-April, Sidewalk Labs was still lobbying all three levels of government. On April 14, seven Sidewalk Labs employees, including its buildings-innovation director Karim Khalifa, held a call with five officials from the City of Toronto, Toronto Building, the Waterfront Secretariat and Fire Services Division, according to the city’s lobbying records. The company’s last in-person meeting with city officials was on March 16. On April 22, two employees of CHM Fire Consultants registered to lobby Ontario on behalf of Sidewalk. 

But in Alphabet’s April 28 quarterly earnings report, despite beating analysts’ revenue estimates, Google saw a “significant slowdown in ad revenues” in March as the pandemic hit home. “There is still a great deal of uncertainty regarding the path to recovery,” said Pichai. Notably, Alphabet posted steep losses in its “Other Bets” division, a group of subsidiaries that includes Sidewalk Labs. 

“After a decade of growth, there have to be opportunities for added efficiency,” said CFO Ruth Porat on the day’s earnings call. “And we’ve been focused on that for some time. But painful times like this put a spotlight on an urgency around making sure you’re focused on the levers that you have.”

What it means for Google: Wendy Manton, a Google Canada official, told The Logic that Sidewalk Labs’ decision will not impact Google’s presence in the country. “We’re building three new offices, one each in Montreal, Toronto and Waterloo, and our expansion plans continue,” she said. Google is reportedly implementing hiring freezes, but has declined to answer questions about how that may impact the Canadian expansion it announced in February.

“While I regret that Sidewalk is no longer pursuing the Quayside project,” Toronto Mayor John Tory told The Logic, “I am heartened by the fact that Sidewalk and Google—which employs hundreds of residents—will both remain in Toronto and a part of our strong tech and innovation sector.”

Just before Sidewalk announced its withdrawal from the project Thursday, Fortune reported that Sidewalk Infrastructure Partners (SIP) had raised a US$400-million Series A. SIP is a holding company that Alphabet, Sidewalk Labs and the Ontario Teachers’ Pension Plan (OTPP) announced last August to focus on investments in technology-enabled infrastructure projects. Sidewalk Labs said at the time of the fund’s announcement that SIP’s launch was not contingent on whether the Quayside development moved forward. On Thursday, OTPP reaffirmed its commitment to the venture, telling The Logic the collapse of the Quayside partnership would have no bearing on its involvement.

Here’s how people reacted to the news:

“It’s disappointing to see the end of the Sidewalk Labs effort to bring Quayside to fruition. COVID-19 has created many hardships for Canadian technology startups and workers; now the crisis has claimed a project led by one of the world’s largest tech players.

An extraordinary amount of effort was expended by the company, the community and three levels of government to create a mandate to build and embed a smart city driven by data, innovation and clean technology. There were real concerns to be dealt with, but there were also many ideas in the Quayside project that our startup technology ecosystem could have rallied around.” – Yung Wu, CEO of MaRS Discovery District

“We’re obviously disappointed by today’s news. The Quayside project has been an interest to our members. It’s good for the community at large and clearly an opportunity for Toronto…. We’re also at the same time pleased that they’re keeping a presence here in Toronto … because it shows that they see the opportunity here in Toronto in terms of working with the business community.” – Farah Mohamed, senior vice-president of strategic initiatives, policy and public affairs at the Toronto Region Board of Trade

“This [is] a major victory for the responsible citizens who fought to protect Canada’s democracy, civil and digital rights, as well as the economic development opportunity. Sidewalk Toronto will go down in history as one of the more disturbing planned experiments in surveillance capitalism and I hope Canadian policymakers will reconsider how we build Canada in the 21st-century knowledge-based and data-driven economy.” – Jim Balsillie, former co-CEO of Research in Motion (now BlackBerry) and Sidewalk Labs critic

“This is huge; we are sending a message to Silicon Valley on behalf of all those around the world who are fighting Big Tech in their cities. We knew all along that Sidewalk can’t realize its tech dreams on 12 acres alone, so this has been coming for a while.” – Julie Beddoes, an organizer with #BlockSidewalk

“Now [Canada] has an opportunity to actually define the business model that we want [for smart cities]. We can plot our own path as opposed to inherit one from a foreign multinational.” – Kurtis McBride, CEO of Miovision

“Quayside continues to provide opportunities for innovative solutions to urban challenges, including affordable housing, active transport and climate resilience. While Sidewalk Labs has decided to no longer pursue the Quayside project, we will continue to work with our partners at Waterfront Toronto, the City of Toronto and the Province of Ontario to ensure that Quayside is ultimately developed with the long-term goal of making Toronto a more sustainable and livable city.” – Catherine McKenna, federal infrastructure minister

“We appreciate the interest and time that Sidewalk Labs has invested in working with Waterfront Toronto over the years. It has been exciting to see possibilities for Toronto’s waterfront.” – Laurie Scott, Ontario’s infrastructure minister

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“Today’s announcement is an opportunity for our governments to develop a long-overdue national data strategy, including a smart-city strategy, to ensure Canada can build new infrastructures in a responsible manner. Our country has some of the world’s best smart-city innovators, and we urge Waterfront Toronto to restart the project with the view of protecting Canadian civil and digital rights and advancing economic development for the benefit of Canadian economy rather than Silicon Valley.” – Ben Bergen, executive director of the Council of Canadian Innovators

“Hopefully this endeavour will demonstrate that [certain things do not belong in private sector hands and] there is a fundamentally important role for a democratically elected government on governance of issues of privacy, the environment and the person’s right to housing.” – Julie Di Lorenzo, former Waterfront Toronto board member 

With files from Fatima Syed