Image source:

You know all those old phone booths littering the sidewalks of New York? Sidewalk Labs -- a start-up effort backed by Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) has plans to make those things useful again in the age of smartphones.

Sidewalk Labs is the leading investor in a consortium that acquired Titan Outdoors and Control Group last Summer, and merged the two companies to make Intersection. As if that's not complicated enough for you already, Intersection is part of a consortium of tech companies called CityBridge, which recently launched a project called LinkNYC, which is converting old payphones in Wi-Fi kiosks offering free gigabit Internet, free phone calls to all 50 states, and a charging station for tablets and smartphones.

The free service is being turned on this month with plans for 500 more "Links" -- as they're being called -- set to deploy by midyear. In total, the network is expected to cost $200 million to set up as many as 7,500 stations. Then there's also the cost of operation. Gigabit Internet isn't cheap. So, why is Alphabet and the rest of the CityBridge gang willing to take on such costs to offer free Wi-Fi to New York?

Sidewalk Labs is getting some help
Titan Outdoors, now part of Intersection, is one of the leading providers of outdoor digital advertising. Each Link will feature display advertisements on each side of the kiosk, and it will also serve advertisements to individual devices as users log onto the network using their email. 

CBS News projects the advertisements will generate revenue of $1 billion over the next 12 years. That's nearly 2.5 times as much as the static posters previously decorating New York payphones.

Additionally, Sidewalk Labs has a sister company that's really good at advertising. Intersection will be able to tap Google's advertising expertise, and even potentially tap into its anonymized user data to serve programmatic advertisements to users as they log onto the network.

Intersection will have the ability to change ads based on time of day and day of the week without cost, something that's already available to advertisers using digital billboards but typically unavailable on existing phone booths.

Although CityBridge will have to split the revenue with the city, Titan Outdoors and Google's advertising expertise should help it get much more out of these ad opportunities than the city previously took in. 

With a $200 million initial investment, CityBridge could see a positive return within as little as five or six years. Alphabet's take is only a small percentage of that. For a company that generated a net income of nearly $16.5 billion over the trailing 12 months, that's just a drop in the bucket for the long-term potential of controlling how many New Yorkers may soon access the Internet while out and about.

But Sidewalk Labs doesn't want to always rely on Google
Sidewalk Labs is attempting to set itself up to be an independent company that doesn't rely on Google or other advertising experts to generate revenue and turn a profit. CEO Dan Doctoroff has his sights set on changing the transportation industry with self-driving cars, which would revolutionize the parking and construction industries. He also see potential for adding sensors in buildings to completely revamp zoning laws based on noise levels.

To that end, Sidewalk is competing with lots of different companies. AT&T (NYSE:T) recently announced its Smart Cities initiative that will bring Internet of Things technology to several cities in the coming years starting with Atlanta, Dallas, and Chicago. The project aims to bring things like traffic monitoring and electric grid management onto one system. It will even include features to improve public services like gunfire detection.

Those are the same problems Sidewalk Labs is looking to solve down the road. Progress will be slow, however, considering it must be done on a city-by-city basis and requires loads of committee approvals for each project. But government contracts can be lucrative and stable sources of income for a long time, which could make Sidewalk Labs an important company for Alphabet investors if it can move past its current ad-supported projects like LinkNYC.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.