Network: A year is a long time in cyberspace

Microsoft started 1998 considering a preliminary injunction granted by US District Judge Thomas Penfield Jackson, prohibiting it from tying its Internet Explorer (IE) browser to the Windows 95 operating system. The company maintained that it was impossible to separate the browser and the operating system, so to comply with the injunction it proposed offering for sale an older version of Windows or a non-functional one. The US Department of Justice (DOJ) filed a claim for contempt asking that Microsoft be fined $1m a day until it complied fully with the injunction. The matter was resolved when Microsoft agreed to let manufacturers delete the IE icon from the Windows desktop.

For the US government's anti-trust case into whether Microsoft had used illegal business practices to violate a 1995 consent decree, Judge Jackson appointed a "special master", Professor Lawrence Lessig, to collect evidence and propose a legal outcome. Microsoft objected to the appointment, saying that Lessig was demonstrably biased against the software company. In February, an appeals court suspended Lessig and the DOJ said that it was examining the possibility of filing fresh anti-trust charges against Microsoft.

In March, the DOJ confirmed that it was widening the scope of its investigations to include issues related to Sun Microsystems and the Java programming language. Microsoft's sales did not suffer. In March, the company joined the elite "market cap" club, passing the pounds 200bn market value level.

As the year progressed, both the DOJ and Microsoft made extensive use of the media to try and bolster their own cases. Microsoft's contention that the government was impeding its ability to innovate received some support when an appeal court overturned Judge Jackson's preliminary injunction and criticised the timing and rationale of the DOJ's case and its interpretation of the 1995 consent decree.

In May, the DOJ was joined by 13 states which were also considering filing anti-trust lawsuits. Eventually a coalition of 20 states and the DOJ filed suits and Judge Jackson agreed to combine the complaints. A date of 8 September was set for the trial. As details of public access to pre- trial witness examinations was worked out, the trial date slipped to 23 September and then to 15 October and finally to 19 October. Proceedings were often low-key as expert witnesses presented their testimony on matters such as the degree of integration between IE and Windows, and relationships between Microsoft and other companies such as Netscape Communications, Apple and Intel.

Videotape of Bill Gates being less than co-operative in his deposition provided some light relief. By the end of November, AOL's proposed $4.2bn buyout of Netscape and a co-operative deal with Sun was announced. Earlier this month, Judge Jackson said it could "have an immediate affect on the definition of the market as we are contemplating it here".

By mid-December, one of the states dropped out of the case. South Carolina Attorney General Charles Condon said he felt that Microsoft was no longer harming competition in the hi-tech industry. "The merger of AOL with Netscape... proves that the forces of competition are working," he said. "Further government intervention or regulation is unnecessary and, in my judgement, unwise."

Findings released in January by Positive Support reviews suggested that Microsoft's browser had overtaken Netscape's in usage, but commentators were unsure of the methodology employed. More conventional studies, according to ZD Market Intelligence, showed that by June the number of PCs using Navigator had fallen from 63 per cent last year to 54 per cent, with IE doubling from 21 per cent to 39 per cent. A month later an AdKnowledge survey put the figures at 52.2 per cent and 45.6 per cent respectively. IDC reported that by October Netscape had lost its market lead with 41.5 per cent compared to IE's 43.8 per cent.

In April, Netscape fulfilled an earlier promise to make the code of its software open source, encouraging a wide community of developers to download the code for free and improve upon it. Netscape said that despite its proposed acquisition by AOL in November, work carried out by Mozilla.org, the independent open-source project set-up by Netscape to develop new features and add-ons for Netscape browsers, would not be affected.

The International Telecommunications Union, meeting in Geneva in February, completed the technical specifications of the V.90 standard for 56Kbps modems. Final approval of the draft standard came in September. Although hailed as a solution to compatibility issues, V.90 still caused some problems. Users of Apple's iMac had difficulty in establishing a dial-up connection with their ISPs, a problem, Apple said, caused by ISPs not properly implementing V.90 code.

At the end of February, the European Union criticised a US plan for reforming the Internet's naming and address system, saying that opening up control of domain names to a variety of US companies rather than the US government-contracted Network Solutions Inc (NSI) would still give Americans too much control of the Net. A plan to transfer the control of domain names to a non-profit international organisation was proposed in June. Agreement was reached between NSI, the US government and the EU for NSI's monopoly to end by September 2000.

The Java wars reached court when, at a preliminary hearing in March, US District Court Judge Ronald Whyte ordered Microsoft to remove the Java- compatible logo from Internet Explorer and its Java software developer kit. Sun Microsystems said Microsoft had introduced non-standard operating system-specific features in its implementation of Java and had broken the terms of its Java license.

Last month, Judge Whyte said Sun was likely to prevail in court and he issued a preliminary injunction to stop Microsoft from selling any products that use Java, including Windows 98 and Internet Explorer, unless the software was modified to pass Sun's Java tests. Microsoft said it would comply. It also said it would no longer supply Java Virtual Machines for the Macintosh or Unix version of its browser. Microsoft later decided it would appeal against the preliminary injunction.

Steve Jobs, who had returned to Apple Computer in 1997 as interim CEO in an effort to reverse its dwindling fortunes, announced in April that the company had returned profits for two successive quarters on the back of high demand for Power Macintosh G3s. Three months later, he reported that demand was outstripping supply and that more profits were in the offing. He hinted that the upcoming iMac could be the first Apple machine to win converts from current Windows PC users. The August launch of the iMac in the United States saw stores selling out on the first day. Although it was on sale for only 17 days in August, it was the second biggest- selling system that month, accounting for 7.1 per cent of all sales. Almost 13 per cent of iMacs sold were to people replacing Windows PCs. In September, the iMac launched in Europe. A new version of the Macintosh operating system, MacOS 8.5, also shipped. By October, Jobs was able to report profits for four successive quarters.

Amazon.com, the online bookstore that has made $2bn for its founder, Jeff Bezos, took its first steps into Europe in May with deals worth $55m to buy the UK online bookseller Bookpages, the German Internet bookshop Telebook and the Internet Movie Database. In June, it expanded into music sales, offering discounts of 10 to 40 per cent off retail prices. Even though the company has yet to show a profit in the "investment cycle" of its development, its share value surpassed $100 in June and reached $300 in December. It lost $45m on revenues of $153m in the third quarter, but saw 564 per cent growth in customers over the previous year.

Manoeuvring for position in the online music sales market took off in May when CDnow signed a $14m deal with MTV to promote the Web as a mass market outlet. Following the entry of Amazon.com into the market, CDnow said in October that it planned to merge with its rival, N2K.

Meanwhile, the MP3 de facto standard file format, popular among Web users and independent music distributors, suffered a setback when the Recording Industry Association of America (RIAA), citing fears of piracy, won a temporary injunction prohibiting Diamond from marketing its Rio music player, a Walkman-like device that plays music downloaded from the Net. The injunction was overturned last month.

In November, Iomega and Liquid Audio announced plans to work on technology to enable copyright-protected online distribution of music. A similar initiative was announced this month by the RIAA, the major record labels, and leading technology companies.

The 25 June release date for Windows 98 did not slip. An update, rather than a new operating system, Microsoft said it was the final incarnation of DOS-based operating systems. The release was low-key compared with the launch of Windows 95, but 17 PC World stores opened at midnight in the UK and sold 1,081 units in one hour of trading. Within a month, one million upgrade units had been sold. The first update was posted on Microsoft's website in August, but the company claimed that it was for multimedia enhancements, rather than a bug fix.

In a year where all players in the portal website market were making deals and strategic alliances, Yahoo! maintained its position as market leader. In July, Yahoo! co-founders Jerry Yang and David Filo became billionaires when stock prices closed in on $200 per share. By October, the company had tripled its turnover with profits of $16.7m on net revenue of $53.6m for its third quarter, compared with $18.1m in the previous quarter.

September saw the launch of Freeserve - a subscription-free Internet service provider backed by Dixons and Energis. The intention was to increase Net traffic and open up the potential for electronic commerce. Although technical support was charged at pounds 1 per minute, by last month the service had established itself as the UK's second-largest ISP with 475,000 users, close behind the UK's largest, AOL, with 500,000 paying users.