Hootsuite, one of the world’s most successful social media management platforms, is at an existential crossroads after being reined in by the very companies that made it a success.

The difficulties began last fall when Twitter, looking to shore up its revenue streams, reportedly asked Hootsuite to pay as much as 10 times what it previously charged for access to its enterprise application programming interface (API). Problems continued this spring when Facebook cut third parties, including Hootsuite, off from key features of its API in the wake of the Cambridge Analytica privacy scandal.

In addition, at least eight senior managers left Hootsuite between April 2017 and April 2018.

The changes have left employees questioning the future direction of the company, some longtime customers disgruntled with what they consider a product in decline, and have likely put a long-rumoured IPO—floated as an option as recently as January by CEO Ryan Holmes—on hold.

Hootsuite, which is reportedly worth about US$750 million, downplayed the impact of the changes, saying it believes recent API modifications by Twitter “ultimately improve the customer experience,” and that those by Facebook “do not impact the vast majority of our business customers.

First came Twitter. According to a source familiar with the negotiations, the social network told Hootsuite last fall that it would have to pay around $75 million over three years—or 10 times what it had been paying—to continue using its data-rich enterprise API. Hootsuite chose not to pay for the service and switched to the social network’s free public API this January.

According to the source, the switch to the free API would have had a dramatic impact on Hootsuite’s high-volume clients in the news, sports and entertainment sector who make high-frequent use of the API for their work.

“We are under confidentiality agreements with all our partners and cannot comment on the nature of those relationships,” wrote Hootsuite in an email to The Logic. Twitter said it does not comment on its relationship with API partners.

Twitter, which has said it believes its own apps are best for users and that many of its newest features “are only possible in a Twitter-owned app,” introduced a new middle-tier premium offering of its API in November 2017. Previously, it had only offered a free standard option, with the prestige enterprise offering being aimed at major firms.

In the process, Twitter grew its data-licensing business to $US89 million in the first quarter of 2018, a 20 per cent year-over-year increase, and to US$109 million in the second quarter, a 29 per cent year-over-year increase.

In January, Twitter announced it would restrict users from automating actions across accounts. That meant users of Hootsuite and other third-party social media managers—such as Buffer or Sprout—could no longer publish the same tweet, or similar tweets, from multiple accounts. Beginning next month, Twitter will also put in place caps on how much third-party apps can post. Both changes, designed to undercut spam, will limit the ability of third-party app users to manage multiple accounts.

Jennifer Pricci, owner and chief marketing consultant at Los Angeles-based Phantom Power Marketing, said recent API changes “basically [defeat] the purpose” of using Hootsuite. She said she has been a paying customer for four years, but now is unlikely to renew the service.

Pricci said she has multiple clients in the same industry, many of whom have several legitimate Twitter accounts, that are often required to Tweet out similar information—for example, a group of real-estate business accounts may need to promote the same news item or listing.

“Twitter made changes related to posting content to multiple accounts in an effort to combat bots, fake news and abuse of their platform, and we believe these changes ultimately improve the customer experience,” wrote Hootsuite.

Then came Facebook, which in April announced it was disabling third-party managers like Hootsuite from posting to personal profiles. Implemented earlier this month, the changes also prevent Hootsuite users from being able to like, edit, delete, comment on or share those posts.

“Facebook’s recent API changes have drastically changed the way I use Hootsuite to manage my company’s social media channels,” wrote Roman Tafoya, social media coordinator for Colorado-based Schomp Automotive Group and paying Hootsuite customer, on Hootsuite’s Facebook page. “Functionality is basically half of what it used to be and the frustration is real.”

Hootsuite said that Facebook’s changes “don’t impact the vast majority of our business customers who operate Facebook business pages.”

However, its website notes that several additional functions—including creating, editing and deleting events and the ability to target organic posts by gender or language when publishing to Facebook pages—are no longer supported.

“These changes were communicated to our customers, with solutions and best practices provided to help mitigate any impact of the changes going forward,” wrote Hootsuite.

In addition to the changes to Hootsuite’s business environment, the company has also experienced an exodus of its top brass. Four senior managers who left between June 2017 and February 2018—Geordie Henderson, VP engineering; Louisa Thue, senior director of Hootsuite’s DataLab; Cameron Uganec, senior director of growth marketing and education, and Craig Ryomoto, VP growth—all went on to join Bench, a Vancouver-based digital bookkeeping startup.

In April 2017, Noel Pullen, the company’s senior director of technology, left to become president of SEDNA Systems and, in October 2017, Andrew Handford left his post as senior vice president of products.

Sujeet Kini, who came on as CFO in 2015 as the company was reportedly flirting with an IPO, left in January and was replaced by Greg Twinney, who joined from Real Matters, a mortgage lending tech company.

Matt Switzer, who was interim COO and, before that, senior vice president of strategy and corporate development, left in April and is now a partner at Northwest Capital Partners.

Since it was founded in 2008, Hootsuite has raised at least US$299 million, including a US$60-million Series D round in 2014 led by Fidelity Investments and VC firm Accel, and a US$165-million Series B round in 2013 led by Insight Venture Partners. OMERS Ventures took part in both rounds.

While changes to the APIs and features offered up by Silicon Valley firms can occur swiftly, especially at Facebook, Hootsuite has a more diverse business model than many social media management platforms. It is better-positioned to navigate the changing tides of the industry than more narrowly-focused competitors because it integrates with Twitter, Facebook, Instagram, LinkedIn, Google+ and YouTube, and has supports for Reddit, Storify, Tumblr and Marketo. It also struck up a marketing cloud partnership with Adobe in December 2017.

In addition, Hootsuite has in-house marketing services and training services that generate other revenue streams, and has made several acquisitions, including competing social media manager Seesmic in 2012. Last year, Hootsuite acquired LiftMetrix, a social media analytics firm.

Recognizing the diminishing relevance of organic social and the increased opportunity in paid social content, Hootsuite acquired AdEspresso, a digital advertising management platform, last year. In spite of the recent challenges, the acquisition has helped Hootsuite retain a strong relationship with Facebook.

“AdEspresso by Hootsuite continues to fill a critical market need for paid social as Facebook’s leading advertising partner,” wrote Hootsuite. “We expect this relationship to continue to grow as paid social becomes increasingly more important to our customers’ integrated marketing mix.”

Since 2010, the company has made at least 12 acquisitions and, in March, Hootsuite took on US$50 million in non-dilutive credit from CIBC Innovation Banking, which Holmes said would support future mergers and acquisitions.

Despite previously stating publicly that it had at least US$100 million in revenue, Hootsuite said, “As a private company, we do not disclose details on our revenues.”

The company also declined to discuss the number of active users it has, saying it counts “more than 16 million customers as a number that we regularly communicate and update publicly.” However, the source who recently left the company said the active user number is closer to 650,000.

Meanwhile, employees have been left wondering about the future of a company once considered a Canadian success story, and which counts more than 1,000 staff worldwide, with at least 650 in Vancouver alone.

After a town hall-style meeting with Holmes last month, employees expressed dissatisfaction in a private online message group, with one staffer summing up the mood by saying, “This is about my twentieth town hall and this was one of the worst… No celebration or wins. Bland generic answers. No clear path. Director levels feel the same way.”

Vinny O’Hare, a web and social media consultant in New York City who runs 30 websites, said in response to the API changes, “I am in slight panic mode. I actually have replaced Hootsuite in 90 per cent of what I was doing.”

None of this seems surprising to social media experts who have watched Facebook and Twitter rush to close off access since the Cambridge Analytica scandal broke.

“One concern was there were lots of bots that engaged with regular users on platforms like Twitter,” said Anatoliy Gruzd, director of research at The Social Media Lab at Ryerson University’s Ted Rogers School of Management. “What allowed these bots to exist was the ability to post messages through the API—but these are the same activities that platforms like Hootsuite use, so by limiting the ability of bots to post, they also limit other clients like Hootsuite.”

Gruzd questioned the business cases of companies whose services rely on API, saying, “It takes a lot of time and money to maintain a platform that relies on API, and if that’s your business model it’s unsustainable because overnight with no notice your business model can fall apart.”

Benjamin Edelman, a business professor at Harvard University who studies the economics of online markets, noted in a presentation on API, which he directed The Logic to, that dominant internet firms can exploit their market power in several ways: “raise prices, restrict output, reduce quality, impose harsh non-price terms and suppress the growth of competitors.”

The perils of designing a business model linked to social media companies has been a recurring theme in 2018. Facebook’s News Feed change put viral publisher LittleThings out of business, and, as The Logic reported in July, led to 40 layoffs at competitor Diply.

And Twitter announced last week it was ending its legacy API (which Hootsuite does not operate on), putting the future of third-party apps such as Tweetbot, Twitterrific, Talon and Tweetings in doubt.

“Essentially, you have multiple social media giants, and they have multiple stakeholders,” said Gruzd. “Developers are one of those groups, and are under-serviced now, with the primary focus being on securing the privacy of users and making sure they’re not leaving the platform.”

In July, Facebook reported its lowest quarterly user growth in seven years. Similarly, Twitter’s number of monthly active Twitter users fell by one million after a bot purge.

“Going forward, we want to know how users interact with platforms after Cambridge Analytica, though it’s too early to tell,” said Gruzd.

“We’ll also want to know whether they are now less trustful of third-party apps—that’s assuming third parties will still even be able to build apps.”

This story was updated on Friday, August 24, 2018 to include that two additional senior managers left Hootsuite in 2017.

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