(FORTUNE Magazine) – From the time the Internet was known only to small bands of geeks to its explosion as a cultural and economic force, FORTUNE has been its Boswell, faithfully chronicling every (well, virtually every) detail. We've written about Net companies' volcanic growth, Net stocks' speedy march from investing's lunatic fringe into the strongholds of blue-chip mutual funds, the throes of anxiety that the Internet has inspired at old-line companies, and, perhaps best of all, the money. Ah, the money: the gargantuan sums that the Internet has showered upon financiers, entrepreneurs, and even a few lucky individual investors. Yet even with all that, we've increasingly been feeling as though something--something major--has been missing.

You see, we have an obsessive need to somehow measure the magnitude of the Internet--and we have to admit that mere words don't always do the trick. So we decided to create an index: the FORTUNE e-50. Our ambition is by no means modest. The e-50 is meant to capture the Internet's effect on the economy as it broadens beyond a niche to encompass much of the business world. What's more, the e-50 should provide a way to gauge the performance of your own portfolio. After all, as smokestack America blossomed in the 1900s, investors had the Dow Jones industrial average to track its fortunes. (And despite the Dow's belated acceptance of Microsoft and Intel, tracking the old economy is still what it does best.)

We've made the e-50 as inclusive as it can be this early in the game. Each of the companies in our index is, or has the potential to be, a major player; taken together, the companies cover the spectrum of the Internet economy. From e-tailing innovators like Amazon.com to enablers of faster, better networks like Broadcom, they're all here. Of course, our e-50 includes the usual suspects, such as AOL and Yahoo. But it also includes unexpected names--behind-the-scenes powers like EMC and Oracle, as well as old giants like IBM and AT&T that are reinventing themselves to provide products and services for the Internet era.

What you won't find are tiny fly-by-nights, because the e-50 excludes brand-new companies and ones that are too small. To make the cut, a company must have been public for at least six months and must have a market cap that exceeds $100 million. That helps make the index investor-friendly. But it's not to say you should make the e-50 your investing shopping list; it's designed as a proxy for the Net economy, not a set of picks. Even though there's enormous opportunity for companies connected to the Internet--hundreds of billions of dollars of opportunity--stock by stock, they are high-risk investments, as the four stories that follow the list make clear.

But we're excited all the same. Although it's still extremely early in the Internet's development, and although hype is superabundant, we believe the Internet, broadly defined, may soon offer trillions of dollars of opportunity. A recent study by the University of Texas (financed, admittedly, by Cisco Systems) reckons the Internet economy--including the revenues from e-commerce, software, and infrastructure--at $301 billion in 1998 and projects that it will reach $507 billion in 1999. Compare the expected $340 billion, or 4%, growth in the U.S. GDP--red-hot numbers, as GDP goes--with the expected $206 billion, or 68%, growth in the Internet economy. Says Andrew Whinston, one of the economics professors who oversaw the study: "The numbers will continue to amaze us."

E-companies--mostly dot-coms you've heard of--constitute the first group on the list. These companies are redefining not only the way business is done but also how we shop, communicate, advertise, entertain ourselves, plan our lives, and manage our finances. They embody wildly different business models. Amazon.com and eToys use the Net as a new way to sell consumers old products, while CNet offers something--news and information about technology--that most of us wouldn't have wanted before the World Wide Web came along. E*Trade helped pioneer a way for investors to trade stocks online; eBay did it for trading just about everything else. And Priceline.com is trying to replace the conventions of retail pricing with a silent-auction-like "name your price" system. The long-term success of the Internet revolution begins with such innovations: If businesses and consumers don't patronize the Net, for new products or old, for information, entertainment, or garage-sale relics, eventually the venture capital will flow elsewhere and there will no longer be money to pay for better software or dramatic infrastructure upgrades.

Not every one of the e-companies is a pure Net play. Because Charles Schwab predates the Web, it may seem out of place in this group. But in just a few short years, Schwab has completely reinvented its business around the Internet. It executes some 70% of its trades online and is by far the biggest online broker. According to analyst Greg Smith at Hambrecht & Quist, Schwab controls about 20% of online volume. Healtheon, meanwhile, is on the list because of its ambition to Webify health-care information and services for doctors, hospitals, and patients; before its pending merger with the consumer site WebMD, most of Healtheon's revenues came from offline consulting.

The future of the e-companies is intertwined with that of the software and services companies: If one group thrives, so will the other. There are endless examples of how software that's invisible to users is key to what they do online. If you visit Yahoo Finance and search for news on your top investment, it's Inktomi that has supplied Yahoo with the software for that search. If you log on to Citicorp's site, you're banking with software designed by Security First Technologies (soon to be renamed S1). The eBay Website is hosted and managed by Exodus Communications.

For Web software and services companies, the future holds vast opportunity. For example, J. Christopher Everett, who is in charge of e-business at PricewaterhouseCoopers, says that only 7% of corporate e-commerce Websites in the U.S. are integrated with back-office systems. That may mean an e-retailing meltdown this Christmas, but it also may mean huge growth for a company like Oracle.

To many investors the role of hardware in the Internet economy is even more deeply hidden than that of software. That's partly because many of the companies that build the hardware that powers the Web have been around for a lot longer than the Web itself has. Yet much of their recent growth--and even more of their future growth--hinges on being able to satisfy the Internet-related demand. Sun Microsystems was founded in 1982 as a maker of workstations; today its servers are the engines of thousands of major Websites. (Sun's programming language, Java, has likewise become a mainstay for the Internet's content developers.) While EMC has been helping corporations manage data for some 20 years, its products also now store the data you generate when you buy a book at Amazon.com or search for "online sex" at Yahoo.

The older hardware companies don't have the field to themselves. They're being challenged by waves of startups with next-generation technology. Broadcom, founded in 1991, makes products that enable older, slower phone wires to transmit data at high speeds. Juniper Networks, born a year later, makes a superspeedy router. A look at Juniper's stock gives you an idea of the potential that investors see in this area. The stock went public in June at $34 per share; six months later it is selling for $275.

Communications companies--the pavers of the Internet's highways--complete the loop. In a perfect world, innovation in each sector will create a virtuous circle, with faster networks driving more e-commerce, creating a need for even better networks. Upgrading America's too-old, too-slow telephone network, which took about a century to build, is a massive task. But if you believe predictions that the Internet will one day supersede the telephone as the world's primary means of communication, these companies will be road kill if they simply sit by the wayside. Not surprisingly, they're all scrambling to build next-generation networks. That's why AT&T is betting more than $100 billion that cable will be a major carrier of Internet data. That's why Global Crossing is spending billions to build a network of undersea fiber-optic cables that will one day connect the entire globe.

The sectors into which we've divvied our selections aren't entirely exclusive. EMC's storage units are actually integrated hardware and software units; we call IBM a hardware company, but most of its e-revenue derives from its services business. And while Cisco Systems hardware is crucial to the Internet--with virtually every bit of data coursing the Net passing through a Cisco router or switch--the company would fit on any section of the list. For instance, it handles some 80% of its orders online, dwarfing Amazon.com as an e-commerce company: Amazon.com generated $356 million in revenue in its last quarter, or about $6 million each business day; Cisco sells more than $32 million in products a day via the Net. And Cisco would make a heck of a Web consultant. It has integrated the Net into all its operations, using it to handle employee communications, manufacturing, and accounting. According to CEO John Chambers, the company has increased its productivity 20% by using the Internet as a hiring tool. It's a true competitive advantage: Cisco says that using the Net to track where applicants come from even helps it determine how its competitors are doing.

Nor are products that make the Internet possible necessarily used only for the Internet. That's true of Sun's servers, EMC's storage products, and Dell's computers. But Internet use is a large part of each company's growth in demand. Take computers. According to IDC in Framingham, Mass., 90% of the PCs purchased for the home and about 50% of those purchased by corporations in 1998 are being used for Internet access. The Yankee Group in Boston says that while onliners use their computers on average six days a week for two hours at a time, offliners use theirs only 4.5 days a week for 1.5 hours at a time. The implication for, say, Dell is obvious: Its revenues wouldn't be growing at a 40%-plus rate, and its profits wouldn't have reached a record $1.8 billion in the last four quarters, were it not for the Net. (Like Cisco, Dell uses the Internet to run its business and enhance its profitability; it handles some 40% of sales online.)

Other companies, like Intel, have a tangential relationship to the Internet today but are racing to make themselves central. The giant chipmaker gets some 50% of its revenues from products sold online, or around $1 billion a month, and a substantial portion of its sales are driven by Internet usage. From Intel's standpoint, that's hardly enough; it is investing heavily to develop Internet products and services. This year it is spending about $6 billion to acquire Internet-related chipmakers, like Level One Communications and DSP Communications--marking the first year in its history that Intel will have spent more buying companies than building plants.

The e-50 also includes companies that today derive only a small percentage of their revenues from the Net--we've tried to identify potentially powerful players early. In some cases, even a small percentage can be a big number. In MCI WorldCom's most recent quarter, just 11% of its revenue came from the Internet. But that amounts to $924 million--or almost three times Amazon.com's total revenue. And MCI WorldCom says that Internet usage (measured by hours connected) increased 83% year over year, making the Net the fastest-growing part of its business. Qualcomm derives almost none of its revenue from Internet businesses. But if you believe--as many do--that Qualcomm's wireless technology will become the standard for users accessing the Internet through all sorts of remote devices, then Qualcomm and the Internet will be very important to each other one day soon.

Notice that we've avoided the temptation to brand companies as "Internet" or "brick and mortar." The lines between the two are already blurring, and they'll only blur more over time. Although Schwab's online-trading revenue has exploded, some 70% of its new accounts are still opened in one of its 225 branch offices: Bricks and mortar, it seems, are as integral to Schwab's business as the Internet is. That can work the other way too. Amazon.com began as a pure Net company but is now spending heavily on warehouses and other bricky assets. Carolyn Buck-Luce, national director of electronic commerce transformation (a real title) at Ernst & Young, says that an increasingly large component of her business is helping Internet companies understand the brick-and-mortar world.

As more companies become e-companies, and as new technologies change the way we think about the Net, the e-50 will evolve. For all the upheaval that the Internet has caused--sleepless nights for many old-economy CEOs, abrupt reversals in strategy for giants like Merrill Lynch--it's nothing compared with what's to come. There's a constant flood of newly public companies with huge promise, consolidation fever is sweeping the Internet universe, and technologies that we can't yet imagine will shake the playing field. So we'll revise the e-50, just as Dow Jones has updated its venerable list of industrials--however, our updates will happen every three months rather than every several years, as befits a world that runs on Internet time. (Hopefully, we'll catch the next Microsoft before a decade has passed us by.)

We wish it weren't the case, but it's likely that some of the e-50 will fail, also forcing changes in the list. Prospectuses for many of the companies drone on for pages about the multitude of things that may go wrong. ("There can be no assurance that the Company will be successful.... The Company believes that it will continue to incur substantial operating losses for the foreseeable future....") And so could we. In many cases these companies have ballooned to multibillion-dollar market capitalizations--not because of proven business models and hard numbers, but because of investors' hopes and dreams and their fears that they may miss out on the next big thing. Tom Madden, chief investment officer at Federated Investors, a big Pittsburgh money manager, is a history buff who has done research on periods of economic upheaval from Britain's railroads to America's automobiles. He points out (as did Warren Buffett in FORTUNE's last issue) that many of these "revolutions" have failed to reward all but a tiny minority of investors.

One of the biggest risks, and one that's easy to lose sight of in all the Internet hype, is that growth rarely occurs in a straight line. Forecaster Forrester Research breezily predicts that precisely $114.3 billion in vehicles will change hands online in 2002--but extrapolating the future size of an industry is a notoriously iffy endeavor. Look no further than the online brokers for a taste of the nastiness that can happen when a growth industry hits a bump. Online trading was projected to take over the stock market, but last summer its growth slackened, and in the third quarter volumes actually decreased. As a result, E*Trade stock has fallen 50% and Ameritrade 75% from their highs of last spring; even Schwab has fallen 30%.

Perhaps scarier is the fact that no one--Wall Street analysts and their scientific-sounding "valuation models" included--can quantify what investors should pay for Internet opportunities. Only one thing is certain: The way we think about valuation is going to change. Jonathan Cohen, director of research at Wit Capital in New York, points out that there are two fundamental ways to value a company: its cash flows (the mere existence of which remains a big question mark for many of the companies on our list) and supply and demand. To date, Internet stocks have traded based on supply and demand, and the scarcity of Internet equity has helped the stocks garner sky-high value. But as more companies go public and the definition of an Internet company broadens--a trend to which this list should add impetus--that scarcity premium will erode.

Put bluntly, there's a hellacious amount of uncertainty. Still, if there weren't question marks, if everything were decided, if we knew for sure that all the grand projections would come true and that every e-50 company would fulfill its promise, then the stocks would be perfectly priced already--and there wouldn't be any opportunity for investors. We'd have to start writing about Internet-company bonds.