To say that 2001 was a turbulent year for the IT industry would be an understatement. IT managers battled incoming viruses on one front while fighting corporate budget-cutters on another. The promise of the Internet economy went down along with the promise of a new Internet society, as all but a few dot-coms fizzled while corporate interests and governments stomped on information-sharing and privacy rights online. The ever-growing PC installed base finally foundered on the shores of a weak economy worldwide. Even merger mania stalled this year, with the biggest deal of the year -- Hewlett-Packard and Compaq -- turning into a nasty boardroom brawl. Here, in no particular order, are the stories that shaped our industry in 2001:
Viruses, worms run amok
Whether it can be blamed on shoddy coding, negligent administrators or stupid users, 2001 was the year of the worm. Nimda, Code Red, Badtrans, Anna Kournikova, the list goes on and on, right alongside the list of millions of infected systems. Most of the year's early worms were e-mail-based, exploiting settings in Microsoft's Outlook e-mail program that make it the preferred propagation method for virus writers everywhere. Later, though, worms turned to the Web, taking advantage of software security holes to break into Web servers and launch attacks. Once again, Microsoft software was center stage, with Nimda and Code Red attacking the company's IIS Web server. As the year wound to a close, a future in which worms would spread through multiple methods, such as e-mail, the Web and chat applications, was beginning to come into sharp focus, as virus researchers had said it would. If predictions for such so-called "blended threats" came true in 2001, many were left wondering whether 2002 would see the advent another prediction: Worms that can update themselves automatically to avoid detection by antivirus software.
The year the music died, and DMCA tightened its gripThe Internet finally became safe for major corporations that control copyright works this year, as the US Digital Millennium Copyright Act (DMCA) was used, challenged and bolstered in a number of cases that could have long-ranging effects on free speech and the Internet. The wildly popular Napster site went down and stayed down, as well, along with a number of its file-trading relatives. The DMCA was upheld by courts in the DeCSS DVD cracking case in November. It was used in June to muzzle Princeton computer science professor Ed Felten to prevent him from publishing his research about security flaws in the Secure Digital Music Initiative. And this U.S. law bared its teeth to a noncitizen who had travelled to America for a conference: 26-year-old Russian programmer Dmitry Sklyarov was threatened with up to 25 years in jail for writing a program that removes copy-protection features in Adobe eBooks, something the DMCA forbids but is legal in his homeland.
Dot-bomb fallout on old-line companies
When the Internet economy imploded in 2000, the "real" technology companies -- such as Cisco Systems and Intel -- that had seemed stodgy during the dot-com craze looked like safe havens for investors. But the fallout from the dot-bomb also touched these technology stalwarts, which have suffered from the combination of a feeble stock market and a no-growth economy. All those startups had voracious appetites for technology. Telecom equipment providers, for example, had their customer lists pruned as debt-laden competitive local exchange carriers (CLECs) and Internet service providers (ISPs) went belly up, often before paying their bills. Big IT companies, names like Intel, Lucent Technologies, and Nokia, had also become big investors in Internet startups, setting up corporate venture funds to bring along small companies with complementary technology, or even just to make a profit. While these funds proved lucrative during the dot-com heyday, they quickly became corporate burdens when the stock market tanked. These vendors would be in better cash positions today if it wasn't for the write-downs taken on dot-com investments.
ISP businesses flame out
By profiting from sales to dot-com companies, Internet service providers and other competitors to the dominant telecommunication companies' wagons were hitched to the same star as many online media companies and equipment providers. When the dot-coms fell off the cliff at the end of 2000, they dragged ISPs with them a few months later, starting with the high-profile crash and burn of NorthPoint Communications Group Inc. NorthPoint went bankrupt and took down the high-speed DSL (digital subscriber line) Internet connection of thousands of customers with them in March. Successively, the ISPs fell -- PSINet went bankrupt in June (though Baltimore's Ravens still play in PSINet Stadium), and Rhythms NetConnections and Covad Communications filed for bankruptcy in August. Excite@Home filed for Chapter 11 in September. These upstarts laughed loudly while attacking staid old economy telecom competitors, but the last laugh was the quiet chuckle of just those telcos as they scooped up the broken pieces by either buying out or bailing out their bankrupt foes.
HP struggles to tie the knot with Compaq Carleton Fiorina came to Hewlett-Packard with a plan for sweeping changes at the stately granddaddy of tech firms. She went public on September 4 with her boldest gamble: A $25 billion bid to buy struggling Compaq Computer and create an IT colossus able to hold its own against mighty IBM. But the news didn't take -- investors dumped shares and quickly slashed billions from the deal's valuation, while analysts warned of the massive risks associated with complex tech mergers. Then the heirs to HP's founding fathers went public with their opposition to the merger, setting the stage for one of the largest corporate proxy fights in history. HP and Compaq head into the new year with their rivals circling overhead like vultures, ready to pick off confused customers as Fiorina and Compaq's Michael Capellas fight to overcome industry doubts and internal dissent at their companies. If the merger is completed, it will be the biggest high-tech union to date. If it falls through, the deal's architects may be among its casualties. Beset by commoditisation and consolidation in its consumer business, Compaq faces a bleak future as an independent firm, while Fiorina's reign as head of HP would likely come to an operatic end.
Security after September 11
In one horrifying morning, hijackers rocked the rarefied sense of security in the US by crashing planes that leveled the World Trade Center towers in lower Manhattan and destroyed a good part of the US military's home, the Pentagon. When financial markets lurched back to life, biometrics was the hot stock as security took center stage. Iris and fingerprint scanning and voice and facial recognition technologies got a lift as airport security in the US was scrutinised and found sorely lacking. Calls for more and better screening continue, as airport terminal closings and evacuations rise due to security breaches. New laws passed in the name of security are meant to curb terrorist activity by making it easier for authorities to snoop.
Privacy rights weaken: scan retina or sign-on to Passport hereA backlash from terrorist attacks on the US and new technologies for identifying users on the Internet made for a double-whammy encroachment on the cyber-civil liberties of Internet users everywhere. The US Congress voted to give the federal government unprecedented powers to snoop on digital communication. The Internet spying system known as DCS1000, or "Carnivore," began chomping away at the meat of Internet privacy. Internet service providers handed the government access to data sent over their pipes. And in December, the FBI confirmed that the government is working on another Internet spying technology, code-named "Magic Lantern," to be used to eavesdrop on suspected criminals. While the new technology means better tools for tracking down bad guys who misuse the Internet, advocates say it also means the end of privacy on the Web. Next thing you know, the government will make up with Microsoft and start handing out Passport accounts as national ID cards -- identify yourself and read your Hotmail with a single login.
IT growth stalls; drop projected in relentlessly optimistic analyst predictionsOn the planet of the IT market research firms, a world where every line points upward as it travels from left to right and markets always seem to grow, 2001 delivered a reality check. For the first time in history, PC sales measured by International Data Corporation and Dataquest declined in Europe and the US In September, IDC projected worldwide shipments for the PC, the little engine that today drives so much of the globe's IT market, to fall 1.6 per cent, compared to last year's growth of 15.7 per cent. The US consumer market led the downturn, and was projected to tumble 25 per cent from its 2000 level. Is it just the economy? Or is the global market resisting Bill Gates' vision of a PC in every home and on every desk?
MacOS X finally bows
For Mac users the world over, the wait for a mature, robust operating system finally came to an end this year when Apple released the Unix-based Mac OS X in March. The new OS was based on BSD, a Unix variant that would have sent Mac users screaming years ago. However, with a spiffy, animated user interface laid over the top of BSD, Mac fans embraced the OS happily. Mac OS X was the culmination of Steve Jobs' 1997 return to the company he co-founded in the late 1970s, as the technology that helped build Mac OS X was acquired when Apple bought Jobs' company NeXT in 1997. After nearly 10 years of delays and almost as many codenames -- Mac followers no doubt cringe at the mention of Pink, Copland and Rhapsody -- Apple finally has an operating system to build on for its future.
Microsoft on trial: Are they getting away with it again?
A year ago, Microsoft was under the threat of a breakup, ordered by Judge Thomas Penfield Jackson after he found the software giant guilty of breaking US antitrust law. Now, Microsoft critics say that it looks like the company may get just a slap on the wrist. A proposed settlement reached between Microsoft, the US Department of Justice, and nine US states calls for restrictions on Microsoft's behavior, but still lets it add essentially whatever it wants to its products -- a clear victory for Microsoft. Microsoft feels so vindicated, despite private lawsuits and a European case that have not been resolved, that when the nine suing states not participating in the settlement called for harsher remedies, it protested by calling the plan "punitive." Maybe someone needs to remind Microsoft lawyers that the company was found guilty.
Longtime industry observers recall the 1994 consent decree settlement -- also criticised for being a slap on the wrist -- between the DOJ and Microsoft, in the wake of antitrust inquiries that began in 1991. After much legal maneouvering, that settlement was upheld in 1995. But one year later, after accusations that Microsoft was violating the consent decree, the DOJ launched yet another antitrust inquiry, which broadened into the case that is still making headlines. While the software industry moves at fiber-optic speed, some things never change.
-- By Stacy Cowley and Marc Ferranti in New York; Cara Garretson in Washington; Matt Berger in San Francisco; Elizabeth Heichler, Nancy Weil, Sam Costello and George A. Chidi Jr. in Boston.