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5/13/2019 Hootsuite faces internal, customer discontent amid challenges to its core business - The Logic

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Digital Media

Hootsuite faces internal, customer discontent amid

challenges to its core business

Hootsuite employees work at the company's main sales office in Vancouver, British Columbia.
FILE. December 15, 2016. Hootsuite/Glassdoor

By Sean Craig
Aug 23, 2018

Hootsuite, one of the world’s most successful social media

management platforms, is at an existential crossroads after being 1/12
5/13/2019 Hootsuite faces internal, customer discontent amid challenges to its core business - The Logic

reined in by the very companies that made it a success.

The difficulties began lastSmall
fall when Twitter,
Medium 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.

Talking Point
As Facebook and Twitter re-exert control over their own users
and revenues, companies that have helped shape the ecosystem
are being shut out. Hootsuite, the Vancouver-based social media
management platform, once considered a Canadian tech 2/12
5/13/2019 Hootsuite faces internal, customer discontent amid challenges to its core business - The Logic

success story, is now facing severe pressure from customers,

making an IPO in the near future seem unlikely.
Small Medium Large

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. 3/12
5/13/2019 Hootsuite faces internal, customer discontent amid challenges to its core business - The Logic

In January, Twitter announced it would restrict users from

automating actions across accounts.
A A meant users
That A of
Hootsuite and other third-party
Small social media managers—such
Medium Large 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. 4/12
5/13/2019 Hootsuite faces internal, customer discontent amid challenges to its core business - The Logic

“Facebook’s recent API changes have drastically changed the way

I use Hootsuite to manage myA company’s A social media
A channels,”
wrote Roman Tafoya, social media coordinator
Small Medium forLarge
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.”

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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 5/12
5/13/2019 Hootsuite faces internal, customer discontent amid challenges to its core business - The Logic

—all went on to join Bench, a Vancouver-based digital

bookkeeping startup. A A A
Small Medium Large
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. 6/12
5/13/2019 Hootsuite faces internal, customer discontent amid challenges to its core business - The Logic

In addition, Hootsuite has in-house marketing services and

training services that generate A
A other revenue A and has
made several acquisitions,Small
including Medium
competing social
Large 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. 7/12
5/13/2019 Hootsuite faces internal, customer discontent amid challenges to its core business - The Logic

Meanwhile, employees have been left wondering about the future

of a company once considered
A a CanadianA success story,
A and
which counts more than 1,000
Small staff worldwide,
Medium 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 8/12
5/13/2019 Hootsuite faces internal, customer discontent amid challenges to its core business - The Logic

platform that relies on API, and if that’s your business model it’s
unsustainable because overnight
A with noA notice your
A business
model can fall apart.” Small Medium Large

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

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

“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. 9/12
5/13/2019 Hootsuite faces internal, customer discontent amid challenges to its core business - The Logic

“Going forward, we want to know how users interact with

platforms after Cambridge Analytica,
though Aearly to tell,”
it’s too
said Gruzd. Small Medium Large

“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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