Before Alphabet subsidiary Sidewalk Labs could move forward with a grand plan for a new tech-enriched neighborhood in Toronto, Sidewalk CEO Dan Doctoroff had to persuade Alphabet CEO Larry Page of his vision. It was no easy task.

The two clashed over some initial fundamentals of the project, which was announced Tuesday. Mr. Page preferred Alameda, Calif., in the East Bay across from San Francisco, as the site where Sidewalk Labs should develop the project, partly because of the city’s proximity to Alphabet’s Silicon Valley headquarters, according to two people briefed on the conversations. The city-building effort is particularly high stakes for Alphabet because of the initiative’s public visibility. In addition, it comes after the company has had varying results with urban-focused technologies, leading in areas like self-driving cars while other projects such as high-speed internet have flopped.