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Monday, December 29, 2003 - Page updated at 12:00 AM

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The best and worst in the business of technology

If anything, 2003 will be remembered as the year the technology empire struck back. Sort of. The weather-beaten industry began to stabilize and — dare we say — show signs of a recovery.

 The tech-heavy Nasdaq, rose 47.7 percent this year, even fluttering briefly over 2,000 (still far below its all-time high of 5,048.62 on March 10, 2000).

And local public technology companies began reporting financial results that included the elusive "p" word.

But venture-capital investment remained at levels reminiscent of 1997 and 1998, with forecasts of small, incremental growth.

Meanwhile, the local tech industry added some jobs (largely a result of continued growth at Microsoft), and started to fan some lower-rung work overseas. Some call it "sober optimism"; we see it as life after the bubble. With that, we take a look back at this year's highs and lows. Farewell, 2003.

Five best 'Technology scorecard' performances

Each Monday, the Business/Technology section tracks technology stocks of local interest. The following rankings — which involve companies with headquarters in the Seattle area — are based on split-adjusted closing prices of stocks on Dec. 31, 2002, and Dec. 26, 2003.

1. Primus Knowledge: Up 1,352.4 percent, $6.10.

2. Targeted Genetics: Up 455.0 percent, $2.22.

3. Loudeye Technologies: Up 430.2 percent, $1.67.

4. aQuantive: Up 260.7 percent, $10.46.

5. Data I/O: Up 250.5 percent, $3.19.

Five worst 'Technology scorecard' performances

1. Onyx Software: Down 39.2 percent, $3.77.

2. WatchGuard: Down 11.5 percent, $5.65.

3. Corixa: Down 9.4 percent, $5.79.

4. Microsoft: Up 5.3 percent, $27.21.

5. Nastech: Up 8.7 percent, $9.29.

End of an era

Microsoft in July said it would no longer grant options to compensate employees, but rather award actual stock.

The decision ended an era in which the company's fast-appreciating stock options became coveted tickets to a world of prosperity and luxury that changed the look and feel of the Seattle area in the 1990s.

With the announcement came two choices for employees: either hold onto their options and wait for the stock to rise above their strike price, or sell them to J.P. Morgan. (The investment bank, and its clients, are betting that the stock will rise and the options will become valuable before they expire.)

Either way, the outcome should be a boon to the local economy: Microsoft this month said its employees were to receive $382 million from the special buyout program.

Most of the money, roughly $287 million, is expected to be spent in the Puget Sound area.

Boldest action

Seattle-based RealNetworks this month filed a $1 billion antitrust lawsuit against Microsoft, claiming the Redmond-based software giant is still a predatory monopolist.

The lawsuit accuses Microsoft of deploying the same tactics that crushed the Netscape browser to wipe out competition in the market for digital-media players, a core part of RealNetworks' business.

Microsoft denied any wrongdoing and said the market's future will be determined by products, not lawsuits. The dispute could take at least three years to settle.

Action least thought out

Federal authorities here in September arrested Jeffrey Lee Parson, a 19-year-old Minnesota high-school senior, for launching a variation of the pervasive Blaster worm.

Parson didn't create the original worm — which targeted computers running versions of Microsoft's Windows operating system.

Rather, he modified it by adding additional features.

Parson allegedly renamed the worm after his own online nickname and directed the worm to contact his own Web site.

It took authorities just six days to find him. Parson was arraigned in a Seattle federal court, where he pleaded not guilty.

The case is being handled here because Microsoft is headquartered in Redmond.

Smartest PR move

Bellevue-based drugstore.com in November publicly challenged Google and other Internet search engines to accept paid advertisements only from online pharmacies verified by the National Association of Boards of Pharmacy (NABP).

The move was designed to block rogue Internet pharmacies — ones that administer an online prescription without a physical consultation — from bidding for preferred placement on sponsored search-engine results.

Google called drugstore's request "highly commercially motivated," but changed its stance a week later, saying it would hire a third-party company to verify online pharmacies before accepting ad dollars.

The winner? Drugstore says it's the consumer. We say it's drugstore.

With rogue pharmacies out of the way, it becomes cheaper for it to reach potential customers.

Worst PR fiasco

Microsoft's MSN division in the United Kingdom announced plans in early May to equip a portable toilet with a computer, waterproof keyboard, wireless Internet connection, surround-sound speakers and a plasma-screen display on the exterior.

The kiosk, aptly named the iLoo, was to be used at summer music festivals in England.

But the project quickly became the butt of jokes around the world, and Microsoft responded by saying the project was a hoax.

It then changed its story later the same week: iLoo was a real project, it said, but executives killed it after reading the news coverage.

Most memorable acquisition

After a failed attempt in the fall of 2002 to acquire the Expedia shares it did not already own, Barry Diller's company, USA Interactive (now InterActiveCorp), announced in March that it would buy out the Bellevue-based online travel site in a deal worth $4.93 billion.

Expedia's shareholders approved the proposal in August, turning the company into a privately held division within USA and taking one of the strongest Internet stocks off the Nasdaq for good.

Coup d'état

RealNetworks completed its acquisition of Listen.com in August, buying the company for $17.3 million in cash and 4.1 million shares of stock. (It was valued at $22.2 million on closing day.)

The acquisition was somewhat of a coup for RealNetworks, which invigorated its digital-music business by adding Listen.com's lauded Rhapsody subscription music service to the mix. Was Rhapsody worth its price? Time will tell.

Worst acquisition shuffle

Bellevue-based Onyx Software and Oak Investment Partners, a Palo Alto, Calif.-based venture-capital firm, both made offers to buy Pivotal, a Vancouver, B.C., maker of customer-relationship management software. (Oak had plans to take the company private and merge it with Kirkland-based Talisma, another CRM software company.)

As if the competition weren't enough, CDC Software, a subsidiary of Hong Kong-based chinadotcom.com, made a proposal, too.

Onyx withdrew its offer earlier this month after Pivotal rejected its terms more than once. Oak refused to up its bid and withdrew its offer the next day, leaving chinadotcom.com with the spoils.

Smells like 1999

Marchex, an online ad-services company founded by former Go2Net executives, filed this month to go public in an offering worth as much as $35 million.

The Seattle-based company is less than a year old. While Marchex had more money coming in than going out of its operations by the time it filed its prospectus, it was not profitable.

We'll keep an eye out for the beanbag furniture.

Signs of aging

Microsoft in March announced it would pay a dividend of 8 cents a share to investors, signifying a coming of age for the software giant. Until then, the 28-year-old company had been unresponsive to growing demands from investors for a share of its $40-billion-plus cash reserve, saying it needed the money for business development and to fend off legal claims.

'Internet cable' cometh

RealNetworks in April reached the 1 million mark in paid subscribers to its online content services. Subscriptions to access audio and video (think Major League Baseball audio games and CNN video clips) have become the main revenue source for the Seattle digital-media company, which built its business on providing technology to play music and video clips online.

The company said recently it expected to have 1.3 million paying subscribers by the end of the year.

Wal-Mart for geeks

Amazon.com this year reached two critical milestones: $1 billion in revenue and a profit — both during a nonholiday quarter.

The reason? The company's strategy to cut prices for books, DVDs, electronics and other items, and to offer free shipping on certain orders over $25, seems to be working.

The online retailer appears to be back in the good graces of Wall Street, too. Amazon's stock has nearly tripled in the past year.

Most lucrative week

Microsoft Chief Executive Steve Ballmer in May sold nearly $1 billion in company stock to diversify his financial assets.

The series of stock sales drew attention partly because he's historically held onto his shares.

Ballmer has given shares as gifts, such as nearly $10 million in donations to the University of Washington. But he has not sold his shares since May 1991. The transactions reduced Ballmer's holdings in Microsoft to 431.6 million shares, or 4 percent.

Biggest business blunder

Bellevue-based Valve Software was forced to delay the debut of its highly anticipated computer game "Half-Life 2" after the game's source code was leaked onto the Internet.

Valve said in October that it was a victim of a virtual breaking and entering. Someone apparently took its secret sauce — the engine that runs "Half-Life 2" and the most important part of the program — and released it online for all to see.

Valve had spent years working on the game, which was scheduled for a holiday release. The launch has been delayed until at least April.

Best-kept promise

When Amazon.com laid off 1,300 employees in early 2001, it created a $2.5 million stock trust that would allow them to "continue to participate in Amazon.com's future."

The company's fast-rising stock price this year made the sharing all the more generous: The fund swelled to $5.14 million by the time the company sent lump-sum checks to former employees in August.

Nowhere to roam

AT&T Wireless had to explain to the Federal Communications Commission this month why it was having substantial problems helping customers switch their telephone numbers to and from other carriers.

Federal regulators ordered carriers to offer the service to promote competition. While all U.S. carriers had problems ensuring that defecting customers got to keep their phone numbers, more than half of the 600 consumer complaints filed with the FCC were targeted at AT&T Wireless.

The company blamed a third-party software vendor that was hired to handle the transfers. The company said it has cleared most of the backlog.

Oh come, all ye faithful

Call it the center that Microsoft built.

The University of Washington in October opened the $72 million Paul G. Allen Center for Computer Science and Engineering — an 85,000-square-foot high-tech building paid for largely by Microsoft co-founders Paul Allen and Bill Gates.

Allen, a Washington State University graduate, contributed $14 million to the project, and Microsoft and the Bill & Melinda Gates Foundation gave nearly $12 million combined.

The gift was a tribute and probably a thank you of sorts for Gates and Allen.

The pair used to sneak into the UW's computer lab in the 1970s to tinker with its machines, and the university never threw them out.

This article was written by Seattle Times technology reporter Monica Soto Ouchi with contributions from staff reporters Brier Dudley, Tricia Duryee, Gary Dougherty, Kim Peterson and Luke Timmerman.

Copyright © 2003 The Seattle Times Company

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