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BRIAN KENNY: “I have recently seen the silliest film. I do not believe it would be possible to make one sillier,” so sayeth HG Wells in his New York Times review of the 1927 film, Metropolis, and he wasn’t alone. At just over two and a half hours, this German behemoth set in a dystopian future was widely panned by critics for its length and cliché take on social justice. But setting the plot aside, many people were impressed by director of Fritz Lang’s vision of the city of the future and the groundbreaking visual effects he used to bring it to life. Metropolis is a place with towering skyscrapers where robots and slave workers at the direction of wealthy industrialists, who of course live in the towering skyscrapers. The film set the standard for a genre that has been riffed on by directors ever since. When it comes to cities of the future, Hollywood has taken a decidedly cynical view. In the real world, the future looks a lot brighter. Smart technologies, robotics and artificial intelligence have the potential to vastly improve the quality of life for city dwellers, but like everything worthwhile, the future will come at a cost.

Today we’ll hear from professors Leslie John and Mitch Weiss about their case entitled, “Sidewalk Labs, Privacy in a City Built from the Internet Up.” I’m your host Brian Kenny and you’re listening to Cold Call, part of the HBR Presents network.

Professor Leslie John’s research centers on how consumer’s behavior in lives are influenced by their interaction with firms and with public policy. Professor Mitch Weiss’s research interests include digital transformation, pure production, and innovation ecosystems. He was formerly chief of staff to Boston Mayor Tom Menino where he helped shaped Boston’s innovation strategy. So that’s really relevant today. Thank you both for joining me.

LESLIE JOHN: Thanks for having us.

MITCH WEISS: Thank you.

BRIAN KENNY: This was a really interesting case and I think people will be both intrigued and maybe a little unsettled by it as we get into the conversation because the tradeoffs are real and I’d love to hear more from you guys from your perspective about just what the tradeoffs look like. So maybe we can start there like we usually do. Leslie, can you tell us who’s the protagonist in this case and what’s on their mind?

LESLIE JOHN: The protagonist is Dan Doctoroff and he’s the CEO of Sidewalk Labs. Sidewalk Labs is an urban innovation company and it happens to be a subsidiary of Google. His firm recently won the request for proposals to develop an area of Toronto that’s called Keyside and the idea is to develop this area into a smart city. The specific challenge at hand that Dan Doctoroff faces is, how to address the myriad issues of privacy that have come up? At the moment of the case, he has sat himself down in front of his computer and he’s about to host an “ask me anything” session on Reddit. So anyone including the citizens of Toronto can chime in and ask him what is on their mind. And he’s got to say something in the moment. And sure enough, one of the first questions is about privacy. A user asks, what do you envision being the largest privacy issues regarding this project? And how does Sidewalk Labs plan to balance privacy with the effective implementation of all the ideas and goals of this project? So, the first question to students is, what do you do with this question?

BRIAN KENNY: That’s really at the core of the tradeoff thing that I was alluding to before. We were lucky to have both authors of this case here. We don’t always get the benefit of that. So I’m glad to have both of your perspectives because you both come at it from a slightly different background and different approach. What led you to write the case?

LESLIE JOHN: For me, one of my motivations was this pattern that I have been observing whereby managers say, and I believe them, they care about privacy and about consumers’ privacy. But when it comes to actually doing something about it, changing policies and so on, they often stop short of that. And just from anecdotal conversations, one of the reasons they say is that they just don’t know what to do. It’s such an incredibly thorny and complex issue. And also really getting into the details of addressing these issues requires deep technological skills, which lots of managers don’t have because they’re at a higher strategic level. What I think this case offers is kind of a microcosm for issues of privacy. So the debate around Sidewalk Labs use of citizens’ data kind of mirrors that, that we’re having in the marketplace between firms and consumers. And so what our case, what the goal of it in my mind is broadly speaking, to help empower managers to actually make some decisions and provide some guidance to their organizations on how to manage these issues.

BRIAN KENNY: Mitch, what was the motivation for you?

MITCH WEISS: I focus on public entrepreneurship, this idea of extreme inventors inside government trying to solve new problems and also extreme inventors in the outside of government and private companies, often technology companies, often startup companies wanting to solve public problems for government either by selling things to them or doing things around them. This has become incredibly popular these days. There are so many companies trying to solve mobility, housing security problems, things we typically thought of as being purely public problems. People who think that technology is the way through here.

MITCH WEISS: Sidewalk Labs is absolutely one of the most high-profile examples of this at the time. Google, now Alphabet, decides to spit out this company to solve urban problems. And so the question of can a tech company essentially solve city problems is absolutely in the air. And with Sidewalk it’s one of the most high profile cases.

The other thing that I think is interesting here is that Sidewalk in some ways envisions themselves as being a platform for innovation for cities to lie on top of it, as in Toronto, as I’m sure we’ll discuss. And one of the questions is well who do you want to own that platform at the end of the day? Do you want those platforms to be mainly government owned? And some people say yes and some people say no because look at what government is doing now. It’s not working so well.

And some people say, so who do you want to apply for it? Do you want government to do it or do you want these technology companies to do it? And if they do, can they bring all the opportunity and all their innovation to it? But also we’re seeing, as Leslie mentioned, we’re seeing in the marketplace people worried about what will these platforms, these giant platforms, Facebook and otherwise, what happens when they break?

And so, all that sort of enticed me to try to work with Leslie and produce a case both about privacy, privacy in cities, privacy in cities where one of these technology companies is trying to help. And the question is, can they?

BRIAN KENNY: Lots of layers here. This wasn’t Sidewalk Labs first foray into this area. They’ve had some projects in other places. How have those been received?

MITCH WEISS: In some ways I think they foreshadowed some of the complications of doing what they’re trying to do in Toronto. One of the very first projects was announced almost simultaneously with the creation of Sidewalk Labs in 2015 was a company called Intersection that they had built up two companies and a project called Link NYC to put these, anyone who’s been in New York City now will see these Link NYC devices on the streets. They’re these sort of slim towers and they have advertising on them, but they also provide high speed internet charging and some access to city information and help. And so on the one hand, here’s the way that people who don’t have Internet access can get Internet access in a city. This is a huge concern. You’ll bridge the digital divide, right? Reduce inequities, give people a chance to get connected. On the other hand, people are wondering when they wander by these things, are they pinging my phone? If I access the internet via one of these things does it know where I’ve been? And so in New York there were people…

BRIAN KENNY: Healthy paranoia I think people have.

MITCH WEISS: It’s only paranoia if it’s not true. There’s a quote in the New York Times article that sort of announced the launch of this that I think is interesting. A gentleman in New York, Mr. Padilla who was asked what he thinks about this and he says, well, I guess I’m worried about what they are doing with my data and I don’t even know who they is. And so that I think that does capture people’s, I wouldn’t call it paranoia, I would call it a bona fide concern about who’s collecting data, what are you doing with, with it. On the one hand is a chance that homeless people can access the Internet, which is great. On the other hand is there a company that’s harvesting this for some other purpose? And all the ambiguity, uncertainty around that foreshadowed some of what they’ve experienced in Toronto.

BRIAN KENNY: So, what was Toronto trying to accomplish by, they did an RFP. Sidewalk Labs was one of a few organizations that responded to it but what were they trying to achieve there?

MITCH WEISS: Toronto had this underutilized piece of their waterfront, Keyside, as Leslie said. They wanted to absolutely develop that as a wonderful piece of their city, a place that hadn’t been used. More broadly they want to develop their city as a home for innovation. Not just the civic tech innovation, but innovation more broadly. And so bringing something like Sidewalk Labs with bringing Google to Keyside in Toronto and also all the other companies that maybe would plug into something like this. So certainly one thing Toronto wanted to get done was economic development for Toronto in this tech innovation space. And by the way, before Amazon HQ2 two, this was actually quite a high profile get for a city to sort of have landed “Sidewalk Labs” to want to come there. The second objective I think that Toronto had was they want to solve city problems. It’s the same core objective that Sidewalk Labs has. People in Toronto want to solve issues of climate resilience, of affordability, of mobility. And I think that at least at the beginning, there was a genuine belief that by bringing something like this to Toronto, they could actually solve problems in their city for them, for other Canadian cities, and for cities around the world.

BRIAN KENNY: Leslie, what was in there for Sidewalk Labs in this instance?

LESLIE JOHN: That’s a good question. In fact, it’s a little bit murky. What their interests are. Sidewalk Labs hasn’t come out and said, this is our revenue model. There are a variety of different ways that Sidewalk Labs could earn revenue from this Keyside project. The interest would include selling data, selling access to data. Now interestingly, there was an interesting op-ed by Michael Kaczynski in the Times about how we’ve been thinking of selling data and selling access is conceptually different things. But he actually makes this really interesting case for how selling access is really like selling consumers’ data because the person, the entity that buys the access, they can make inferences about the consumers that subsequently contact them. So at any rate that, that’s an interesting, we typically think of those as distinct things, but reading that makes you wonder the extent to which they’re distinct. Okay. So those are two areas. Another reason why Sidewalk Labs may be interested is as a showroom. So Sidewalk Labs has a vision to have more smart cities around the world. And Keyside could really be kind of their test lab for it. And then finally they could, and these aren’t all mutually exclusive of course, they could also be interested in kind of, access as a service model whereby they sell citizens access to autonomous vehicle usage or something like this. But it’s not entirely clear what their plans are. And that’s actually really part of the crux of the challenge of addressing privacy issues because in thinking about privacy, we want to think about kind of who, what each party’s interests are and where their interests may be aligned or misaligned. And you can see that with these different ways that Sidewalk Labs could generate revenue, I think they have different implications for the consumer- Sidewalk Labs interactions with perspective data and whether these interests are aligned or misaligned.

BRIAN KENNY: So, you mentioned at the beginning setting up the case for us that Dan was getting ready to do this Reddit session where he was going to take questions. How did they go about engaging the people of Toronto whose support they clearly need to make this happen?

LESLIE JOHN: They had many questions. They had serious concerns about their privacy. They also, it wasn’t all negative. I mean, some of them were just really curious about the opportunities that it could provide. And I think that’s something that’s really important to acknowledge with issues of privacy is that there are tremendous concerns and issues to be resolved. But we also want to really realize the benefits of the new availability of personal data. So the answer isn’t like just we should never share data because we’d be missing out. It’s a matter of kind of getting the value stream right.

BRIAN KENNY: Which goes back to the tradeoff the question of tradeoffs and how much are you willing to give in order to get some of the benefits that this technology can bring to us. Mitch, and your experience working in the city of Boston, I’m sure you know that every one of these situations requires lots of negotiation and in this case Sidewalk Labs had to offer something up. What was Sidewalk Labs’ vision for what they were going to bring to Toronto? How did they sort of put that out there in a compelling way?

MITCH WEISS: The high-level thing that Dan had said up front, Dan Doctoroff, was we want to bend the quality of life curve for people living in cities. And what are they facing today? Well, they’re facing affordability crises, crises in climate change and a congestion and inability to get where they want to get affordably with respect to mobility. And in their RFP response, they had sort of laid out visions and all these fronts. So we’ll have a city where buildings can be much more climate resilient. We’ll actually have a city where buildings and infrastructure could be more flexible to the changing needs of people who lived there. This physical layer would be married with a new data layer. And so one of the examples they put forth, Dan’s talked about for example, is think about zoning. Right now what cities do is they put forth zoning for an area. Here you can have a bakery, here you cannot. And what they envisioned in Sidewalk Labs is sort of a concrete example is well, if we knew more about people’s wants and needs, we can actually know whether, via their data, via the data layer, we would actually know ahead of time what they want with this physical layer. And so there’s this interaction between a data layer and physical layer we can actually flexibly zone a place for baking because it looks like people on their traffic patterns and their usage patterns would make sense for a bakery there. So in terms of the physical infrastructure, in terms of your mobility, they envision essentially a fully autonomous area where people using autonomous buses and cars to get around, anticipates traffic patterns and the like. They actually talked about improving the weather as such because we’ll know what days are sunny, where the shade is and how we put the buildings and the shades.

BRIAN KENNY: That’s out there, control the weather.

MITCH WEISS: It’s out there. In Boston we could appreciate that right? I’m sure in Toronto they’re hoping for right now. So they laid out a lot of these visions but Dan Doctoroff and team were careful to say these are just ideas yet, that we want to develop these further with you, the people of Toronto. And then they engaged in a dialogue with the people of Toronto via town hall meetings, the individual small work group sessions via the internet over Reddit and otherwise to try to flesh some of this out.

BRIAN KENNY: In order to deliver on this vision, they would really need to collect a lot of information about people. Leslie, you’ve looked at this topic quite a bit in your research. I was amused, I guess by, or maybe a little alarmed by one of the stats in the case where it said that 97.5 percent of people would give away their friends’ emails for free pizza. I love pizza, but I don’t know if I give away my friends’ emails for it.

LESLIE JOHN: You say you wouldn’t.

BRIAN KENNY: People do say that they are concerned about the protection of their information and I believe that they probably mean that. At the same time we’re giving away a little bit of it every day here and there in different ways. What are people really willing to trade off in this kind of a situation?

LESLIE JOHN: That’s a core question. On one hand, there’s the argument that, well, because people’s behavior often doesn’t reflect any kind of concern for their privacy it must mean that they don’t truly care about their privacy. My research and research by others suggests that that’s not the case. People really do care about their privacy for the most part. But this concern doesn’t always translate into our behavior. Why? Because there are a variety of decision making biases, errors that get in the way. And it’s not that people are stupid, it’s just that our brains are kind of hardwired to think in certain ways and not in other ways. And when it comes to privacy, we have some consistent biases that emerged. For example, a big one with privacy is present bias, right? So we checked the box. We don’t read what the fine print says, where we’re basically giving away all kinds of access to firms for them to use and sell and do whatever they want with our data. We don’t read that. We kind of maybe know in the back of our mind that that we may be consenting to that, but we just checked the box. Why? Because we get an immediate benefit. And the possible negative consequences of sharing our information, those are delayed. They’re also very difficult to tie to any given act of disclosure. So it’s not a situation that’s really set up for us to connect the dots. And so as a result, we see people in the moment giving away a lot of information for very small, but immediate rewards.

BRIAN KENNY: Like a free pizza.

LESLIE JOHN: Exactly. Another one that can really lead to incoherent decisions with respect to privacy — it’s a classic behavioral economics effect–an endowment effect, which I’ll explain in a moment. But what we have found is that with privacy, which is something that is inherently ethereal, it’s not like buying and selling a mug, buying and selling our information is something that’s very abstract. That’s where biases are more likely to emerge when we’re uncertain of the value of the thing. So what an endowment effect is, is basically in privacy. What we found is that the value that people ascribe to their information depends on whether they’re standing to gain privacy or whether they’re standing to give it up. So we did this study where we essentially asked people whether they would be willing to sell their privacy for two dollars. That was the meta question, but we didn’t ask them in that way. We asked different people in different ways. And it turns out that the way we ask them had a profound effect on the implied value they were placing on their privacy. For some people we said here’s a $10 gift card and this $10 gift card has privacy in the sense that your purchases will not be tracked. So we gave it to the person and then we said, but you can easily switch to a $12 card. Now this $12 card, it’s $2 more, but the rub is that your purchases will be tracked. So these people are in the situation of selling their privacy for $2. The other people were in the opposite position. So we gave them, we endowed them with the $12 card that doesn’t have privacy and we essentially asked them do you want to buy privacy by switching to the $10 card? So this is a trivial distinction in the sense of whether you’re asked to buy or sell in this case shouldn’t affect the value you place on your data, but in fact we found that it really had a profound effect on the valuation that people ascribe to their information. So in the first frame, when you stand to the, we have the $10 card and you stand to sell it, 48% of these people switched cards. But in the opposite frame, only 10% of the people switch cards. So we value our privacy much less when it’s something that we stand to have to pay for.

BRIAN KENNY: This is obviously an issue that they’re going to have, that Sidewalk Labs is going to have to address.

LESLIE JOHN: Right, so then how does this link to these questions? The link is that these are just a couple of examples of the ways that our privacy decision making is inconsistent and not necessarily reflective of our preferences. Now this is a problem in the marketplace because if you think of consumer firm interactions, firms are not rewarded for respecting people’s privacy because our preferences aren’t reflected in our behaviors like of what we’re going to buy from a firm. And so because firms aren’t rewarded, why would they want to respect our privacy if we don’t reflect our preferences in our behavior? So firms are just reacting to the incentives, and this is a classic situation of a market failure, where the consumers aren’t making good decisions even with proper information.

BRIAN KENNY: And firms will pay attention when their brand suffers. We’ve seen that happen a lot in recent years with data breaches. But yeah, that seems to be the one compelling thing.

MITCH WEISS: I think the other thing here, Brian, is that, that the kinds of things that Leslie and her colleagues’ study are consumer decisions which often times are happening in the background and no one’s talking about them until there’s some giant breach or some giant violation. And I think one of the things that Sidewalk and they’ve taken plenty of heat and so one of the things I want to give them credit for is Dan was very explicit that if we do this thing, if we try to integrate these physical and data layers in the city, we are going to start a debate about privacy and physical space. And he acknowledged we’re going to have to have that debate in public. I think as citizens it’s important that we begin to have this conversation with our companies and Sidewalk Labs is put that out, I mean, , quite explicitly and they’ve taken some heat for it, but put that out for all of us to debate.

BRIAN KENNY: The real question is, why should people trust their motives? I’m not singling out Sidewalk Labs per say. But when a lot of firms haven’t demonstrated that they really have a sincere concern about how they manage the private information of people.

LESLIE JOHN: And again, how can they when they’re tremendously incented to get as much data as they can with as few restrictions placed on it? Like that’s their entire business model. So, of course. And so that’s why to me like there’s this fundamental disconnect kind of in incentives in a way where unless firms are truly incented to care about people’s privacy, then it’s really hard to see change. In the case we talk about ways that that may, if you believe that ways that have potentially resolving this problem. Where in the case, the role of the government, the role of the city of Toronto, the Canadian government could potentially play a role as a trustworthy country where people trust their government and democracy are working. So you could think of who might be potentially a good entity to kind of enforce rules and what those rules and regulations might be. Those are all questions that we drive towards by the end of the case. Yeah.

BRIAN KENNY: The answers are not apparent obviously. So you’ve discussed this case in class?

MITCH WEISS: Yes, we’ve had a chance to do it. It’s been riveting in class. I mean, as Leslie said, the case starts out with question on Reddit for Dan, which is what are the biggest privacy issues and how you’re going to balance them against what you’re trying to get done, fixing cities? And what are the biggest privacy issues? The students are off and running. I mean, the list is long. Data collection, data usage, data ownership, data sharing and those are just the headlines, right? So I think our challenge has been how do you not spend the whole class on just what are the issues and trying to get to sort of how do we resolve this. The other thing is that we sort of asked this question, which is would you want to live in the city and the range, Brian is incredible. There’s some people like you who say, absolutely, I want to live there. Like give me the city where the car shows up at my house, where it’s more affordable because I don’t have to own it, where I can get to my job, where I can be healthier, where the air can be clearer. Absolutely safer. I will take that city. There are others who say absolutely not. I don’t want to live in a place like this, this is creepy. And then Brian, there’s a third bucket of people who say, we already do. We already do live in these places. There are cameras everywhere. They’re censored up everywhere. There’s data collection everywhere. There was just that long article in New York Times the other day about your app knows where you are at night. And so again, I think that one of the things that comes out of writing this case for me and comes out of watching Sidewalk Labs a little bit from afar is in some ways I think that, and Dan said this in his own words. He’s trying to bring some element of process to what’s been chaos. And they’ve taken something that’s I think been swept under the rug and mostly been in the dark and try to bring some of that into the light. And so they’re sort of at the front end of this and they’re sort of getting the back and forth and this and the students are in class are more than happy to engage in the positives and the less than positives on this. But I think it’s been a great class discussion because honestly it’s bringing it out into the open things had been into the dark and things we need to wrestle with as citizens, as customers and as companies in the days ahead.

BRIAN KENNY: Leslie, I’m going to give you the last word because in class here we have, I think these are digital natives. I’m not sure exactly how old they are, but they’ve basically grown up with technology and they so maybe are the first generation that has been seeing all of their information to a firms and brands as they’ve grown up. What do you think the future holds for firms who don’t start to really pay attention to this? What advice I guess I’m asking would you give to somebody, a manager today as they’re thinking about this kind of issue going forward?

LESLIE JOHN: I hate these questions where I’m supposed to project the future because I can’t. If there’s anything I’ve learned about human behavior, it’s that it’s quite unpredictable. I think that the privacy is kind of an age old issue. It’s fundamental to human development. I don’t see concerns with privacy going away, even among digital natives.

BRIAN KENNY: Maybe there’ll be a B case when we come back.

LESLIE JOHN: Yes, exactly.

BRIAN KENNY: Thank you both for joining me today. Really interesting stuff.

LESLIE JOHN: Thank you.

MITCH WEISS: Thanks Brian.

BRIAN KENNY: If you enjoy Cold Call, you might like After Hours, a podcast featuring Harvard Business School faculty dishing on the latest happenings at the crossroads of business and culture. It’s what professors from the world’s leading business school talk about when school is out. Thanks again for listening. I’m your host Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School.