Salon Spinoff Reportedly in the Works

Baldwin Louie — Wed, 27 Sep 2000 15:00:00 -0700

Salon.com (SALN), convinced that its lowly stock is drastically undervalued, is close to spinning off a homegrown content-publishing tool it hopes will unlock some of that hidden market value, according to a source close to Salon.

Creation Engines, the name of the new company, plans to sell custom installations of the Salon Publishing System, which also includes built-in syndication abilities, to other Web publishers, the source said. A CEO has already been hired, the source adds.

Salon executives declined to comment on a Creation Engines spinoff, though Chairman and Editor in Chief David Talbot told the New York Times (NYT) Magazine in February that his company was considering licensing its technology. In addition, Salon registered the domain name Creationengines.com on April 13.

The company will face an uphill battle to gain market share in a software niche dominated at the high-end by software/consulting firms such as Vignette (VIGN) and at the low end by simpler, shrink-wrap software vendors such as Allaire (ALLR), NetObjects (NETO) and UserLand.

But Web site usability expert Jakob Nielsen doesn't blame the company for trying and said Salon has a real market opportunity if it delivers a decent product. "The people who run content sites are dissatisfied with all the current tools - and I mean all." But, he adds, while "Salon has a big opportunity, so does Oracle (ORCL), and anybody who can recruit 100 or so good programmers."

Salon would not be the first content company to realize it might have a valuable piece of software to sell. That distinction would go to CNET (CNET), which spun off Vignette in 1996 to sell versions of its custom-built publishing tool, which now goes by the name Vignette StoryServer. The move paid off handsomely for CNET. Since 1998, it has booked about $232 million in gains through periodic sales of its Vignette shares. CNET's remaining stake, which is less than 2 million shares, is worth more than $50 million. Salon's market capitalization at the close of trading Wednesday was just $20.8 million. Vignette's was $6.25 billion.

Not surprisingly, Salon executives might be looking at Creation Engines - of which Salon is likely to be by far the majority shareholder - to be the cash cow that can help repair Salon's stock price. At the end of trading on Wednesday, Salon was trading at $1.50, more than 85 percent off its 52-week high.

Greg Lindsay writes for Inside.com.

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Salon Spinoff Reportedly in the Works