Internet's rise the story of the year

In 1998, it wasn't just a story. It was the story.

And what a year it was as the Internet turned into to a staple of Main Street, forcing powerful changes in the way people interacted with each other. From e-mail to shopping to politics to culture, the Web turned into a prime-time vehicle for a 100 million individuals -- not just in America but around the globe.

Just how mainstream the Internet had become was underscored on September 11 when special prosecutor Ken Starr released the results of his investigation of President Clinton on the Internet, a full day before newspapers had a chance to publish the text. Millions logged on and seemingly all at once, putting an unimaginable strain on the system. Despite fears it might buckle, it didn't. The Internet prevailed at a moment that marked another rite in its passage to maturity as a medium.

And they keep coming
Meanwhile, the market researchers kept churning out eye-popping predictions about Web usage. Sales of goods and services over the Internet were expected to reach $7.1 billion in 1998, more than double the previous year.

It was a veritable mother lode in the making, and it set off a stampede that made the California gold rush pale by comparison. Driven by fear and greed, traditional businesses joined the entrepreneurs in rushing to hang out shingles in cyberspace. Yes, fortunes were there for the asking, as witnessed by the breathless feature articles about twenty-something Internet billionaires. But the move to set up shop was also fueled by concern that if you didn't wire up, the competition would string you up.

This prospect wasn't lost on Wall Street, which sent any new issue with a "Net" in its name to nosebleed heights. The mania wasn't confined to cyber IPOs. The shares of more established online companies, such as Yahoo! and America Online Inc., soared as well.

A new paradigm
Net stocks were so hot that they seemed to sail beyond the known boundaries of common sense. Traditional metrics, such as price-earnings ratios, went ignored as Wall Street enthusiasts argued that investors needed to judge Internet stocks by a new benchmark. Individual and corporate investors bought into the argument, snapping up the stocks of upstart Web companies that didn't have a prayer of turning a profit. It was quite a spectacle.

And it wasn't the year's only one. Another big show opened in Washington, D.C. And, no, it wasn't the Monica-Bill affair. Microsoft went on trial in federal court, charged by the U.S. Department of Justice with violating antitrust laws. Microsoft dismissed the allegations, contending that the case had been surreptitiously orchestrated by jealous rivals.

But as the trial went into holiday recess, the software giant had reason for concern. Unlike a criminal trial, where the prosecution must prove the guilt beyond a reasonable doubt, the DOJ only needs to provide a "preponderance of evidence." And the evidence is piling up. Government lawyers used testimony from competitors and internal Microsoft memos to paint a picture of a company that leveraged its dominance in operating systems to crush nascent competition.

Enter "The Portal"
The Internet remained a freewheeling field where anyone with a bright idea and a server could try their luck at Internet publishing. But there was still question how much longer that would remain true. As the year progressed, so-called Web portal sites established new prominence. The sites, which combined e-mail and search capabilities with a variety of news and entertainment services, invested millions of dollars to bolster their status as the preferred ports of entry into the Internet.

It was an expensive game to play but there was a payoff at the end of the rainbow. The idea was simple: The Web portals that attracted and kept people browsing their sites stood to make a pile of money selling advertising -- and merchandise. So companies such as Disney and NBC willingly paid top dollar to get into the game.

That also factored into America Online's decision to acquire Netscape for $4.2 billion in stock. AOL sought to broaden its large consumer appeal by adding a powerful Web portal that could reach businesses and at-work users. The deal also bailed out Netscape, which was attempting to recapture its momentum. Executives from both sides said the combined company would be able to simultaneously pursue mass-market opportunities in electronic commerce, entertainment and communications.

Cheap toys
The growth of the Internet is ultimately connected to the rise inexpensive gadgets that can access the Web. Although the technology has a year or two to sufficiently ripen, the proliferation of these "Internet appliances" still made some major steps in that direction.

They received an unexpected fillip from the PC industry. Until 1998, computer prices had resisted falling below $1,000. Even then, the systems were often stripped down models made by third-tier manufacturers. But the barriers broke down this year as computer makers benefited from a happy combination -- plummeting component prices in Asia and the arrival of lower-priced microprocessors from Advanced Micro Devices and Cyrix.

There was happy news from Cupertino, too. Remember when all the experts were ready to write off Apple? Many of those same prognosticators ate humble pie after the computing icon enjoyed a stunning comeback. The company turned heads in October by announcing a $106 million profit on $1.6 billion in revenue.

"Interim CEO?"
In part, Apple's return to profitability was the result of major cost cutting. But the company's "interim CEO," Steve Jobs, showed he still had the old touch. He orchestrated a high-profile product rollout that brought back memories of the good old days. With the iMac, a teal colored consumer machine that received reasonably good reviews, Apple again made headlines -- but this time for all the right reasons.

As 1998 ended, however, the challenge facing Jobs and Apple remained unanswered: Can the company increase market share in a Windows-dominated marketplace?

Jobs wasn't the only exec to face a Herculean task. In January, Eckhard Pfeiffer, Compaq's chief executive officer, engineered the biggest combination in the history of the computer industry with the $9.6 billion acquisition of Digital Equipment Corp., with its minions and a history and culture all its own

Bittersweet moment
The absorption of Digital marked a bittersweet moment. For Compaq, which started out as a manufacturer of IBM clones, the deal signaled the final victory of PCs over minicomputers, the staple upon which Digital grew.

Along the way, Pfeiffer realized one of his long-held ambitions -- to turn Compaq into the No. 1 PC manufacturer in the world. But the Digital deal also marked the culmination of Compaq's evolution into a multi-faceted vendor offering everything from notebook PCs to high-end enterprise computers and services.

It was also the year of penguin power. Adopted by Linux developers as their official mascot, the penguin pennant flew high at trade shows as the fledgling operating system began to command respect within the industry.

Gaining momentum
This wasn't just a geek phenomenon either. Advocates count about 7 million Linux users. The operating system picked up varying degrees of support from major companies including IBM, Sun Microsystems, Oracle, SAP and Netscape.

The groundswell was all the more impressive because no single company owned Linux, a free variant of the Unix operating system. Instead, the operating system, built in 1991by Linus Torvalds when he was a student at the University of Helsinki, is community property. Over the years, a global network of computer enthusiasts have nurtured it along by contributing individual additions to the code.

Yet corporate adoption rates remain low and proponents have so far failed to convince management to move beyond small-scale deployment. But the Trojan Horse approach can pay off. It worked for Apple's Macintosh when desktop publishing arrived on the scene.

Y2K bug
Will the world as we know it grind to a halt on Jan. 1, 2000? It's no longer the question du jour among the perennial looney toon set. The chattering classes -- inside and outside the computer industry -- finally woke up to the Year 2000 computer problem. Actually, the world has known about Y2K ever since an independent consultant uncovered the code glitch in 1984.

Just what's going to happen remains a matter of debate. Survivalists are heading for the hills. More sober voices, such as MIT computer lab head Michael Dertouzos, point to some trouble ahead -- but not calamity. In the meantime, corporations and governments are scurrying to make up for lost time and make their computer systems Y2K-compliant.

It's a race against time and the clock is ticking. But passage of time means we have a past. And, as 1998 proved, the past makes great theater and riveting drama.