Top 10 Net trends

Last year marked a watershed in the commercialization of the Internet that began in 1994. After years of laying the access, software, and online services infrastructure groundwork, the Net's commercial zones last year blossomed.

Here's my ranking of the top 10 trends and deals that drove the Net forward in 1997:

(10) Clinton administration unveils e-commerce framework
The Clinton administration took a surprisingly laissez-faire approach to global Internet commercialization. With the exception of the still-controversial administration focus on curbing U.S. exports of advanced encryption software, most of the government framework got high marks from both the technology and Internet industries. Of particular importance has been the administration's Cabinet-level focus on convincing a range of international governments to slow down and/or rethink their emerging initiatives calling for greater Internet regulation. This year will see additional administration efforts in this context, both overseas and at home, with a focus on state and local initiatives on Internet taxation, privacy, and other issues. Important for investors is the philosophical approach this framework represents. Rather than regulating the Internet as it affects a range of other industries--like telecommunications, media, and broadcasting, amongst many others--the framework encourages deregulating other industries to better take advantage of the Internet.

(9) Amazon.com executes exclusive distribution deals with "branded portals"
Amazon.com's (AMZN) simultaneous multimillion-dollar distribution deals with high-traffic "branded portals" like America Online (AOL), Yahoo (YHOO), and Excite (XCIT) became a blueprint for other newly public e-commerce companies, like N2K, OnSale, and others. A flood of distribution deals emerged in the second half of 1997 as a host of public and private companies signed a series of distribution deals with branded portals in order to get exclusive and non-exclusive access to the best and most highly trafficked locations in cyberspace. This year, we will closely watch the results of the execution of these distribution deals. Early indications are that it has been a banner year for consumer Internet advertising and commerce--crossing the billion-dollar mark--for goods and services like books, music, computers, and electronics, to name a few. Although investors should be aware that we are entering a seasonally slower March quarter, the outlook for 1998 overall looks bright.

(8) Tel-Save does $100 million AOL deal
This ground-breaking e-commerce deal with AOL by a major long-distance reseller crystallizes the long-term win-win value of subscriber/user aggregation for both companies. The early signs of the joint effort to offer low-cost long-distance service to AOL's 10 million subscribers have been positive, with greater-than-expected conversion of preliminary trial offers. This deal galvanized investor attention on the long-term potential of subscriber aggregation for a wide range of content, media, and services companies, with AOL chalking up over $250 million in advertising/commerce deals with over a dozen companies during the last twelve months.

(7) FCC tables ISP "modem tax" against the wishes of the Baby Bells
While this issue theoretically had been tabled indefinitely last year by outgoing FCC chairman Reed Hundt, it has since resurfaced faintly in the form of the recent legal actions surrounding the Telecommunications Reform Act of 1996. Consequently, the FCC is again taking public comments on the issue, and investors are focusing on the probabilities and timelines of any possible action. We are closely watching this one, with further news not likely for another six to 12 months. Even a whiff of a so-called modem tax likely would be viewed negatively by investors in both Internet and technology stocks.

(6) Microsoft goes face-to-face with the Justice Department on IE bundling
This is the technology industry's version of the O.J. Simpson trial, with a high polarity of views on either side. Although the legal action continues at a relatively fast and furious pace, investors are likely to grow more transfixed on the proceedings as Microsoft (MSFT) prepares to roll out a truly integrated version of Internet Explorer in Windows 98 and NT 5.0.

(5) Microsoft "J/Directs" Java community
Microsoft announced J/Direct, a set of Java-focused technologies that offers Java developers a faster way to optimize their Java programs to run on Windows, at the expense of future compatibility with non-Windows platforms. This was only the opening salvo in Microsoft's effort to shift the Java debate to its own core advantages in operating systems, tools, and applications platforms. The follow-up was Sun Microsystems-Javasoft's litigation to steer the Java world to a "100 percent Pure Java" initiative. We suspect there will be several more acts to this drama over the next 12 to 18 months, with some possible news from Sun in the near term.