(FORTUNE Magazine) – When FORTUNE first came up with the concept of an annual hot list of "cool" companies in 1993, that beatnik-era adjective was just making its way back into the mainstream vernacular. It's never been a very precise word, connoting hipness in all its amorphous forms, but hey, it made for a catchy alliteration. In four short years, however, "cool" has become the ultimate and ubiquitous modifier for things technological. And now in 1997, thanks to breathtaking advances in computer networking and other information technologies, the up-and-coming companies we've chosen are cooler than ever. One big reason is that many are actually--gasp--generating real sales.

The denominator shared by most of the 25 hip enterprises profiled in the following pages is--yep--the Internet. But the technological innovations and market opportunities they are trying to exploit cover the waterfront, from arcane network security software to Web commerce to telecommunications services to computer games and interactive content. For good measure, we threw in a PC maker, a long-distance carrier, and the designer of something you may see next time you're at the airport--Cyberbooths.

Perhaps not surprisingly, half our companies hail from that caldron of cool, California's Silicon Valley, with the others scattered evenly around the land. Employee head counts range from the teens to nearly 1,000; most outfits are less than three years old, although one grizzled company, Uniphase, was founded in 1979; and annual revenues range from the predictable $0 to nearly $400 million.

But the coolest aspects of these 25 companies are the wildly different people who make them tick. Many had pretty good gigs before venturing out on their own: Founders of two companies are "retired" rock stars, another is a former McKinsey consultant, and the epitome of a slacker--a onetime magazine writer--started yet another.

Groovy. --Brent Schlender



Everyone sneered when Shlomo Touboul spoke of his plans to market a Java security product. It was early 1996, and the software world was jazzed on Java, the Internet programming language that lets developers write one program that works on Macs, PCs, and Unix workstations. Techies scoffed: Java was designed to be inherently safe; it couldn't possibly be dangerous, could it?

It could. Touboul, 36, who two years earlier had sold his network-management company to Intel for $20 million, was right. "Java is like a good piece of Swiss cheese," he says. "It tastes good, but it has holes." Sure enough, in February reports began to circulate that scientists at Princeton and other universities had exposed cracks in the Java armor. By summer, Touboul says, people were seriously worried--but he had had all the time he needed to leave the competition in the dust. In August, Finjan (the name comes from a Middle Eastern coffeepot) released the first product designed to protect corporations from hostile programs embedded in Java code.

A bit of explanation: Most Java applications you download from the Web are miniprograms, or "applets." These range from calendars to basic word-processing software to games, and can run on any type of computer. It's a software developer's dream--and a potential nightmare for systems administrators. While Java is designed to keep applets from reading, writing, or in any other way touching the files on your system, a wily hacker can find a way around it.

The Princeton experts showed that the hacker could write misleading applets that fool the security system, exploiting weak spots to gain full access to a target machine. Or more likely he might write an applet that followed the security rules but still managed to be a pain in the neck--perhaps by starting a huge computation that effectively crowded you out of your own machine.

Finjan's products, SurfinShield ($99) for desktop machines and SurfinGate ($1,250 to $18,000) for servers, are content inspectors. They scan every incoming applet, deciphering its code for evidence of bad intentions. For applets written in ActiveX, Microsoft's Internet programming language, Finjan offers SurfinShield Xtra ($149); an ActiveX-ready version of SurfinGate is in the works. All Finjan products feature a screen that alerts you when a dangerous applet appears, letting you zap it before things get ugly.

The software is developed in Israel, where Touboul works with most of Finjan's technical staff. At the U.S. office in Santa Clara, Calif., Roberto Medrano, 41, a native of Mexico who came to the U.S. in 1974 with "no money, one guitar, two pairs of jeans, and two T-shirts," oversees marketing and distribution. Judging from the buzz, Medrano's getting the message out. Cisco Systems, for one, says that discussions with Finjan brought it to the "watershed decision" to include content inspection in its security products. "We have very high regard for Finjan and its technology," says a spokesman. Finally a few people seem ready to agree with Shlomo Touboul. --Eryn Brown

FINJAN Israel; Santa Clara, Calif. Founded 1996 Revenues: N.A. Employees: 44 Private



The most lucrative composition by Wind River Systems' co-founder, a guitarist aptly named Jerry Fiddler, isn't music but software. Tornado, the operating system he spun out of his musical mind, is well on its way to becoming the noncomputer equivalent to Microsoft Windows. Just as Windows handles the basic functions in most PCs and gives the machines their personality, Tornado powers "embedded" microprocessors--chips that discreetly provide the smarts for many noncomputer products.

Wind River software masterminds everything from General Motors cars to Hewlett-Packard printers to the latest NASA probe destined for Mars. Each time a machine incorporating Tornado is sold, it generates revenue for Wind River, just as Windows does for Microsoft.

So why have you heard of Windows but not Tornado? CEO Ronald Abelmann explains that Wind River's target market is much smaller--and less mature--than Microsoft's: "This area has taken off only in the last four or five years. It's still only about a $250 million market, but it's vital and growing." Demand is more fragmented too: While Windows needs to work on just one type of microprocessor, Wind River has to maintain 20 versions of Tornado to serve all its customers.

Wind River doesn't have a Microsoftian lock--yet. But investment bank and research firm Deutsche Morgan Grenfell calls it the leader in embedded operating systems, with a 16% market share. With annual sales growth of over 40%, a stock that has risen 1,700% in three years (shares traded recently at $34), and market capitalization of almost $1 billion, Wind River is seemingly on the road to dominance. It's growing at twice the rate of Integrated Systems, its largest competitor.

Not bad when you consider Tornado's roundabout origin. As a college student, Fiddler majored in five subjects before taking up computer science in grad school. Master's degree in hand, he drove cross country "in search of life" and ended up in California doing research at a government lab. There he met co-founder David Wilner; they launched Wind River as a consulting firm and developed Tornado to help clients. Soon they realized the software was more valuable than their consulting services.

By sparing customers the chore of writing operating systems for new products, Tornado can help cut time to market by months or even years. The software is embedded in some non-PC Internet devices that will appear soon, like an innovative Nortel phone that will let callers surf the Net on a miniscreen without a computer. Wind River is also helping Oracle create the so-called network computer that Oracle claims will break Microsoft's computing hegemony. That could bring Tornado into the open. --Ed Brown

WIND RIVER Alameda, Calif. Founded 1981 Rev.: $64 million Employees: 350 Nasdaq: WIND



When his application to Williams was rejected in 1989, Bo Peabody didn't just crumple up his ding letter and slink off to a second-choice college. "I called the admissions office," he recalls, "and told them, 'I reject your rejection. I'm coming there anyway.'"

A year later he did. That same doggedness has enabled Peabody, now 26, to turn what started as a freshman-year research project into Tripod, a 40-person company that's creating a new breed of "virtual community" for twentysomethings.

Here's how it works: Tripod's Website is anchored by an online Gen X magazine crammed with sharply written advice on everything from sex to mutual funds. But what keeps people coming back--and viewing ads from Fidelity, Sony, Ford, and the like--are the online conferences where members let it all hang out. The personal home pages that are constantly added to the site are also hugely popular. Indeed, while Tripod's young (average age, 27) and idealistic staff would chafe at the notion, the site succeeds because it taps into something twentysomethings really want: to talk about themselves.

Anyone can become a Tripod member free in exchange for some personal information. Thus far, 350,000 members have taken Tripod up on the offer. With its rapidly growing clientele, the company expects to lure enough advertisers to become profitable by the end of the year. Peabody has raised $13 million from backers like Zenith Electronics CEO Pete Willmott (Williams, class of '59) and Martin Peretz, editor-in-chief and owner of the New Republic, who lends some media-elite cachet.

With his booming voice and athletic build, Peabody looks and sounds more like a lumberjack than a CEO. He says Tripod's Berkshires location, just a stone's throw from the Williams campus, keeps a young CEO humble: "Out here people are more likely to ask how many cords of wood I stacked than how much money I raised during my last round of financing."

Beneath his down-home facade are wily smarts. Aware that the Internet is better at creating buzz than bucks, Peabody is backing into more traditional and profitable business lines in an effort to create a twentysomething media conglomerate. Tripod has created TV programming for CNNfn; a Tripod magazine is shrink-wrapped with Prentice Hall college textbooks; a book deal is in the offing. Peabody wants his brand to become well developed enough to support, say, a Tripod mutual fund. It's an ambitious plan, but as the Williams admissions staff will tell you, he's overcome long odds before. --Ed Brown

TRIPOD Williamstown, Mass. Founded 1992 Revenues: $570,000 Employees: 40 Private



It's a good thing Atcom/Info's cyberbooths weren't around when we were counting on Superman to save mankind. Instead of changing quickly into the Man of Steel in a phone booth, Clark Kent might have ducked behind one of the company's sleek, granite-hued obelisks and distracted himself surfing the Net or tapping out E-mail to Lois Lane. At least, that's what the folks at Atcom would like to believe. They want Atcom's high-speed, public Internet kiosks to do for Internet access what the phone booth did for the phone call: Make it convenient, ubiquitous, and irresistible.

The concept is straightforward: Fewer than one-third of business travelers carry laptops, but many more wish they could send E-mail or check the stock market between flights. So in 1995, Atcom CEO Neil Senturia dreamed up the Internet equivalent of the pay phone--something to let users access online services, their corporate E-mail, and the World Wide Web. The confident sort (Senturia, 50, likens his role as CEO to Moses leading the Israelites across the Red Sea), he drew a picture of what a Cyberbooth might look like and ordered up blueprints from an architect pal.

Less than two years later, Atcom has installed 167 units in airports, convention centers, and hotels from New York to Honolulu. Say you're stuck in the Dallas airport, awaiting a connecting flight to New York, and you realize that you need to E-mail your boss the results of your latest sales call. You hurry to the nearest Atcom kiosk and, with the swipe of a credit card, you're online.

The screen offers alluring options: You could click on a button for news and sports or even play a game of solitaire--but you're here to work. You surf to your corporate network, type in your password, send the stats to the boss, respond to a couple of new E-mails, and leave your intranet. Before you split, you click on the AOL button on the screen, log on, and peek in on your favorite chat group. All this for a mere 33 cents a minute. Then you rush to catch the plane.

Atcom has landed customers like US West and GTE, which buy the booths for about $15,000 each and put them in busy locations with a high density of business types. For a percentage of the revenue generated, Atcom installs and maintains the units and handles billing--a facet of the Cyberbooth that even Superman can't escape. --Shaifali Puri

ATCOM/INFO San Diego Founded 1995 Revenues: $3 million Employees: 24 Private



Lying on a quiet beach in Hawaii, Bill Gross was cogitating on...stock options. That's not as weird as it sounds. Having started more than a dozen companies, Gross knows more about structuring stock options than just about anyone. Surely, he thought, there must be budding entrepreneurs, would-be Jim Clarks, who would pay to learn his secrets of stock options. But how to find a buyer? The answer, of course, was to create another company: ideaMarket, a clearinghouse for ideas, "the Nasdaq of intellectual property."

Farfetched, perhaps. But that's never stopped Gross, the founder of Knowledge Adventure, who now heads idealab, an outfit that fuels Internet startups. To get ideaMarket rolling, he enlisted two high-profile journalists as its top executives. Jim Seymour, a computer writer, is CEO. Peter Lewis, a 14-year veteran of the New York Times science and technology beat, is editorial director. Says Seymour: "It's one of the great ideas of our time."

Clearly there's no lack of confidence at ideaMarket. The project itself is simple. In return for royalties averaging around 40%, publishers and other information providers supply all manner of digitized content: spreadsheets of financial analysis, chapters of computer books, novels, algorithms, even recipes. Lewis' editorial team will vet the content, reject the chaff, index the rest, consult with authors to set a price, and post the material on the ideaMarket Website. Any surfer who visits can search to get brief descriptions of the material. Punch in a credit card number, and the electronic vault opens for download.

Prices will range from 95 cents for crossword puzzles to $2,000 for market research. "The sweet spot will be in the $2 to $5 range," Lewis says. That's a lot less than prices charged by services like Lexis/Nexis, which sell articles from a range of sources. But it's still more than the going rate on the Internet, which is free. Says Lewis: "The Web is flooded with so much information that no one can make sense of it. We provide a filtering mechanism."

Beach bum Gross thinks ideaMarket could be a $100-million-a-year company within three years, but editor Lewis is more circumspect, sort of: "Our modest goal is to build the world's biggest library of information that people are willing to pay for." --Michael H. Martin

IDEAMARKET Austin, Texas Founded 1996 Revenues: N.A. Employees: 18 Private



The twentysomethings who knock around Neoglyphics' expansive Chicago loft space call it the Pied Piper effect: the eerie sway founder Alex Zoghlin has over people he meets. It has helped swell Neoglyphics' ranks from six to 71 in less than two years. More impressive, it has brought an elite cadre of corporate giants--including Sears Roebuck, Allstate, and Citibank--flocking to the Website developer.

Zoghlin, 27, founded Neoglyphics two years ago to create sites that facilitate electronic commerce. The Pied Piper effect kicked in early. After dropping out of the University of Illinois, Zoghlin first coaxed $50,000 in seed money from his dad. Then he persuaded his brother's girlfriend to lend the cause both her Web-page design skills and her apartment. Within months, 16 designers and programmers were clicking away in cramped quarters and ushering in executives from Kraft, Snap-on Tools, and Ameritech to sit in mismatched butterfly chairs and listen to presentations.

Neoglyphics creates crisp, colorful Websites that are simple to navigate, as well as custom applications for customers ranging from the staid (Caterpillar) to the spicy (Playboy). An early success was the Chicago Sun-Times--Neoglyphics designed a program that easily loads print stories onto the newspaper's Website. Neoglyphics also designed the Sears Craftsman site, a mecca for Tim Allen wannabes. They can browse through Sears' entire line of 2,000 Craftsman tools, fill a customized tool box, and order 'em up online.

The techies at Neoglyphics spout phrases like "liberating information," but the company's business philosophy is a model of Midwestern restraint. Ground rules include striving to use customers' existing hardware rather than pushing pricey replacements, running a "harebrained-scheme check" to steer clients from flashy yet ineffective applications, and keeping projects simple enough that customers can maintain the Websites themselves after construction is complete.

Zoghlin, who admits to a certain "religious fervor" about Neoglyphics, logged 600,000 air miles last year, courting clients and evangelizing at technology conferences around the globe. Also helping to spread the word are Sun Microsystems and Netscape, which send a steady stream of referrals. Netscape co-founder Marc Andreessen, a college classmate of Zoghlin's, once offered him a job and a stake. Now he's a believer. --Andrea L. Prochniak

NEOGLYPHICS Chicago Founded 1995 Employees: 71 Revenues: N.A. Private



At Lucky Cheng's, a New York City restaurant known for its cross-dressing wait staff, Ion Storm president Todd Porter, 36, is slurping down a fruity drink and reminiscing about the days when he worked as an exotic dancer ("Preacher Boy") to pay his way through seminary in Iowa. Porter, who is visiting New York on a press tour, stands up and demonstrates, gyrating.

Welcome to the world of Ion Storm. Aside from Porter, who came from a game company called 7th Level, and a couple of others, the key members of the work force are refugees from id software, the legendary outfit that that brought the world Doom. That shoot-'em-up computer gorefest was a technological marvel, with lush 3-D graphics and superfast action, and was played by some 15 million people. The boys of Ion can probably thank that success for their play money: a $13 million advance from their distributor, Eidos Interactive.

Like disgruntled rock band members, the founders say they left id because of artistic differences. At Ion Storm, Porter, company chairman John Romero, 29, and vice president Tom Hall, 32, get to act as producer-directors with complete creative control, each leading a team of about 15 people.

Ion's first game, Daikatana, should be on store shelves by Christmas. Described as a fast-action 3-D adventure (surprise!), Daikatana spans four worlds and features role playing, time travel, 64 monsters, and 32 weapons. Two more games will follow in 1998: Anachronox, a sci-fi role-playing game, and Doppelganger, a game of strategy. Lots of licensing is also in the plan. Ion Storm may authorize everything from "music soundtracks to pocketbooks to little pewter collectibles," says CEO Mike Wilson, 26, adding portentously, "This is our vision, and we know how we want to exploit it."

Right now Ion Stormers are champing at the bit to move into their new headquarters, a 22,000-square-foot "ultimate game world." Says Wilson: "We're building the Willy Wonka chocolate factory!" Slated to be ready this fall, the office will occupy the penthouse of the 55-story Texas Commerce Tower, heretofore home to oil magnates and white-shoe law firms. Dallas, get ready for some brash new cowboys. --Eryn Brown

ION STORM Dallas Founded 1996 Revenues: none Employees: 50 Private



Jaye Muller is a total babe. At least that's what members of his adoring Paris-based fan club think. To them, "J." is a long-haired rock star with bedroom eyes and passionate political views. His debut album, We are the Majority, sold 350,000 copies in Europe and Japan. It's a hip-hop rant about the supposedly Gestapo-like takeover of J.'s native East Germany by the West German government, with lyrics that got the album banned in Bonn.

The fans couldn't care less about JFAX, the company Muller, 25, founded. Meet him at the office, and you encounter a determined entrepreneur with ambitions more like Paul Allen's than Jimi Hendrix's.

It all started when Muller was on a 1995 concert tour through Europe and missed several important faxes while traipsing from one hotel to another. Irate, he put his recording career on hold (he'll cut his next album this summer) and hired a team of programmers to solve the problem. They developed software that compresses faxes into files that can be sent to Internet E-mail addresses. Muller also devised a way to send voice-mail messages as E-mail attachments. JFAX was the first company to offer consumers--mainly jet setters and small-business owners--what's now called unified messaging. Lucent was already supplying fax-to-E-mail software but only to corporate customers.

Subscribers, who pay $12.50 a month, get a personal JFAX phone number. Faxes and voice-mail sent to that number are deposited digitally in your E-mail in-box, so you can download them to your laptop. You can also check in via phone by calling a specially assigned phone number and punching in a password. That connects you to a server that will play back your voice-mail and give details on who has sent you faxes. (Muller hopes eventually to make it possible for subscribers to hear the text of a fax read by computerized voice.)

Muller says he wants to create "a monster telecommunications company." Behaving more like a canny entrepreneur than a rock star, he has brought in some old guys to build it. Richard Ressler, 38, former CEO of MAI Systems, which sets up computer networks for corporations, joined JFAX as CEO in March, and Mickey Schulhof, 54, former president of Sony North America, is a major investor.

Why would such veterans link up with a rock star's startup? Says Ressler: "With the correct management and right amount of money, this could be a major new business, like cable television or cellular communications." That may sound unlikely, but for a company whose founder has blond streaks in his hair and red-leather pants in his closet, improbable is the name of the game. --Melanie Warner

JFAX New York; Los Angeles Founded 1995 Revenues: N.A. Employees: 34 Private



The building at 1380 Shorebird Road isn't much to look at. Flat-roofed, unmarked, and beige, it looks like any other office in Silicon Valley. It isn't.

This building houses data worth hundreds of millions of dollars to companies like Visa International, Microsoft, and Cisco Systems as well as to the federal government. It is the home of Verisign's digital-authentication center. If you believe data to be the global currency of the 21st century, here is the next Fort Knox.

Verisign creates digital IDs that help make electronic commerce safe. The IDs are electronic codes that serve in much the same way as a driver's license or passport--providing almost irrefutable proof of the owner's identity. In lieu of the photo and signature that such documents include, digital IDs incorporate an electronic signature called a private key, which you can attach to any message you send on a network to show the recipient you are whom you say you are.

To create a digital ID, Verisign asks a potential subscriber to provide personal stats such as date of birth, driver's license number, and so on. The company verifies the data through independent sources, such as the services that credit card companies and banks use to score your credit. If you check out, you get an ID. For corporate IDs, Verisign performs a more elaborate security check that can take up to five days.

The firm has issued one million personal digital IDs, as well as more than 25,000 IDs to corporations for use in online banking, large-sum transactions, and contract execution. According to CEO Stratton Sclavos, 35, those numbers will triple within the next year. He has attracted an impressive roster of backers: Ameritech, AT&T, Cisco, Microsoft, Merrill Lynch, Comcast, RSA Data Security, Softbank, Reuters, Visa, and two venture firms have invested close to $40 million in Verisign.

What protects their Fort Knox is a million-dollar security system straight out of Mission: Impossible. Verisign wards off intruders with digital key and fingerprint readers, videocameras, "man traps" that capture unauthorized individuals in sealed corridors, "slab to slab" construction that eliminates crawlspaces above ceilings, and walls whose thickness measures in feet instead of inches. Each employee must undergo a five-day background check by Pinkerton, the detective agency, before hire. Fewer than half the employees have access to the ID-authentication center, even fewer to all areas within. "It takes seven employees to turn on the authentication system, so if one leaves and manages to take a key, he or she would have to get six others to collude to access the data," says Sclavos.

Sclavos expects digital IDs eventually to be embedded in "smart cards" that will do multiple duty as your driver's license, credit cards, health insurance card, voter registration, and house key. He calls the combo a "digital wallet" and predicts many of us will have one tucked in our back pocket by 1999. --Janice Maloney

VERISIGN Mountain View, Calif. Founded 1995 Rev.: under $1 million Employees: 120 Private



Eric Crown is a gambler. Fresh out of college in 1988, he pooled his savings with brother Tim, got a $2,000 cash advance on his credit card, placed an ad for cheap hard drives in Computer Shopper magazine, and started "hustling computers."

The brothers took orders over the phone with a pencil and pad. They had the knack--nine years later, Insight has grown into a $373-million-a-year direct reseller of computers, peripherals, parts, and programs. Since Insight went public in January 1995, the price of its shares has tripled, to a recent $28.

Eric, who is CEO, says he declined buyout offers early on from retailer CompUSA and manufacturer Packard Bell, convinced neither would give Insight the attention it deserved. Smart move. As those would-be acquirers, both dependent on retail sales, have fallen on hard times, demand has swung toward direct sellers like Insight.

The Crowns do have a powerful ally: Federal Express. The $10-billion-a-year shipper co-developed the software and logistics systems that enable Insight to compete profitably against older, more entrenched high-tech catalogue houses like CDW Computer Centers and MicroWarehouse. When a customer dials Insight, the software provides up-to-the-minute inventory data to the salesperson taking the order. He or she can adjust price on the fly to reflect special-order and shipping requirements. Unique "fraud flagging" techniques help Insight sniff out deadbeats using stolen credit cards--the safeguards have led to more than 60 prosecutions and kept bad receivables to 0.2%. Insight relays orders electronically to its warehouse or, in some cases, directly to suppliers. Merchandise can be out the door--via FedEx, of course--in as little as 15 minutes.

Virtually all Insight's business arrives by phone, but the company wants customers to shift to the Website it launched in early 1995. A true believer in technology, Crown says that for small businesses, which make up the bulk of his customers, "human interaction is just time consuming." Using the Website, customers can check availability and pricing, place orders, and track order status themselves. Insight automatically sends E-mail when an order leaves the warehouse and when the goods have been delivered.

Crown says cost savings from going online "can double our bottom line." He adds, only half jokingly, "In a perfect world, the computers would do all the work and nobody at Insight would have to do anything." To promote online shopping, the company is sending customers thousands of pairs of 3-D glasses free. Don the spectacles, log on to the Website, and enjoy Insight's "cybertainment": a 3-D gallery of computer parts enhanced with Spin-o-Rama, a feature that lets you "Spin your favorite products 360 degrees." A rotating 3-D motherboard! It's hard to imagine what customer could resist. --Jeanne C. Lee

INSIGHT Tempe, Ariz. Founded 1988 Rev.: $373 million Employees: 855 Nasdaq: NSIT



The man perhaps most responsible for the current vogue of electronic communities is a soft-spoken, bespectacled veteran of the Internet era. Meet Andrew Busey, 26. "I remember back when Mosaic took off. Suddenly 20 different companies announced they were building browsers," he reminisces. "There's an interesting deja vu going on now with ichat."

Ichat, Busey's creation, is the leading provider of software that enables Web surfers to converse by typing messages that can be instantly read on computer screens around the globe. While chat is infamous as a way for the sex-starved to play out fantasies, it has also become a key part of doing business on the Web. Sites that add chat to their offerings have found that traffic rises and visitors stick around longer.

That's important to corporate advertisers looking to make an impression on the Web. Even more valuable is chat's ability to give users a sense of community. A bicycling Website that offers nothing but products and articles about tours is little more than a catalogue; add chat, and it becomes a meeting place, the digital equivalent of the neighborhood bike shop. That's a site worth sponsoring.

Anyone with a Web browser can download ichat's software free from the company Website. According to ichat, three million people have done so. ichat makes its money when other sites buy the server software to host and organize chats. Customers include Yahoo, Time Warner, Universal Studios, and the Sporting News.

Unfortunately for Busey, ichat's success has not gone unnoticed. That's why the deja vu he speaks of is somewhat nightmarish. The competitors that keep him up at night are America Online and Microsoft. AOL recently released free software that allows its eight million subscribers to chat with anyone on the Net who downloads the same program. Microsoft has integrated chat capability in new server software for corporate intranets.

To stave off these rivals, Busey has enlisted high-end business talent in the person of Mark Saul, 35, who has helped take public three startups in the past several years (see Justin Fox's story on the options culture). "Right now, everyone has a browser and E-mail on their computer," says Saul. "We think chat is going to be the third major part of the desktop." He is pushing ichat into the financial marketplace, selling to brokerages like Merrill Lynch, which will use the products to communicate with customers and alert them to news affecting their portfolios. He has also engineered a deal with IBM in which Big Blue's Lotus division will bundle ichat's software with its Internet-ready version of Notes. When you're up against Microsoft, it helps to have allies like that. --Rick Tetzeli with Michael H. Martin

ICHAT Austin, Texas Founded 1995 Employees: 72 Revenues: $1 million Private



For years, Qwest was buzz-free. It did little more than supply lines to larger phone companies looking to reach new customers in the Southwest. Everything changed last fall, when founder Philip Anschutz, a Denver railroad magnate, decided to create a state-of-the-art, 13,000-mile fiber-optic network across the country and hired a top phone guy--Joe Nacchio, formerly the No. 3 exec at AT&T--to run it.

Now Qwest is building the nation's fifth coast-to-coast telecom network, which will compete with those of Sprint, MCI, AT&T, and WorldCom. Nacchio, who spent 26 years at AT&T, told Fortune earlier this year that Qwest's network will be the most advanced: "Newer companies are able to enter the industry with the latest technology. They have much lower costs and can be more creative in building brand share."

Some analysts agree. Brian Adamik of the Yankee Group in Boston points out that there's room for a fifth network because no established player is upgrading its network fast enough to keep up with rising demand, created primarily by the Internet explosion. The established outfits have to balance investments in upgrades with their efforts to attack the local phone market.

Qwest's network, which should be completed late next year, will reach 65% of the country. While the company will make some money by providing long-distance service to small businesses and consumers, the bulk of its revenue will come from doing what it's always done--supplying capacity to others. Qwest is selling the right to use its fiber network to telcos looking to extend their reach. Anschutz first signed up Frontier, an independent telco in Rochester, N.Y., and WorldCom; after Nacchio came on board, GTE signed up too. Payments from these customers alone nearly cover Qwest's $1.4 billion cost of construction. Now Nacchio is shepherding the company through an IPO set for later this summer, which Qwest will use to cut its $311 million debt.

Helping others compete with AT&T must be sweet revenge for Nacchio. Besides paying him a $900,000 salary and lots of stock, Qwest threw in $11.3 million to make up for options and other goodies he had to forgo when he left AT&T. --Henry Goldblatt

QWEST Denver Founded 1988 Employees: 720 Rev.: $231 million IPO pending



It's seven in the evening in the sleepy Southern California beach town of Carpinteria. While some of the locals are squeezing into wet suits to catch a few sunset waves, engineers Ben Weiss and Andrea Pessino are just beginning their workday at MetaCreations.

Ben and Andrea aren't vampires. That's just the way life is for employees who report to Kai Krause, chief design officer at MetaCreations, the product of a recent merger between two hot visual computing software companies: Fractal Design and MetaTools. "People are most creative when they're able to forget about the constraints of time, which I think working through the night does," explains Krause. "Plus, there are no distractions like ringing phones."

His method may seem mad, but it works. MetaTools' first product, an enhancement for Adobe Photoshop called Kai's Power Tools (KPT), is used by more than 50% of Photoshop devotees. The software enables graphic designers to add sophisticated special effects to their work, ranging from curling paper to scaly skin. KPT has been used to design everything from Issey Miyake clothing to CD covers for bands like Toad the Wet Sprocket.

Last year Krause's team produced a CD-ROM bestseller, the appropriately named Kai's Power GOO. The software turns computerized images and photos into virtual Silly Putty that users can manipulate for the pure amusement of seeing oddities like a leering Mona Lisa. The company's newest product, Kai's Photo Soap ($50), is designed to help anyone clean up photos for catalogues, greeting cards, websites, and more. It will go head to head with photo-editing bestsellers like Adobe PhotoDeluxe ($50), Microsoft Picture It! ($55), and MGI PhotoSuite ($50), which share in an $18 million market.

Taking on powerhouses like $786-million-a-year giant Adobe, MetaCreations is stepping into the big leagues of graphics software. Says CEO John Wilczak: "We want to corner the market on 2-D and 3-D visual computing." To that end, the company last December bought Real Time Geometry in Princeton, N.J. Real Time's Russian emigrant scientists are among the world's best 3-D graphics researchers (chief scientist Alexander Migdal was a quantum gravity theorist for the Soviet space program before moving to the U.S. in 1988). Seems MetaCreations has found a few more employees who have no problem leaving the surfboards at home. --Erin Davies

METACREATIONS Carpinteria, Calif. Founded 1992 Rev.: $62.3 million Employees: 300 Nasdaq: MCRE



In his 20-year career as a writer for magazines like Rolling Stone, Sports Illustrated, and Outside, Don Katz has watched the Ethiopian revolution firsthand, competed in a 120-mile Dutch skating race, and examined, at close range, a very agitated ferret.

Risky as some of his exploits have been, none can quite compare with Katz's current task as CEO of Audible. He's trying to turn a buck selling content via the Net. Worse yet, he's not selling photos of Teri Hatcher, or sports stats, or up-to-the-minute stock quotes. He's selling the spoken word. Oh, and one more thing: He's never even worked at an infotech company.

So why have high-level executives at name brands like Starwave, Macromedia, and Motorola joined up with Katz? Why are financial bigfoots like Kleiner Perkins and AT&T supplying lions in venture funding?

For one thing, while Katz may not have labored in the Silicon vineyards, he did spend two years as Esquire's tech columnist. It was that job that led to the birth of Audible. Katz's writing prompted Random House to assign him a book on the digital revolution. But his sources--Internet entrepreneurs--soon became colleagues, Random House was refunded its advance, and Katz founded Audible, which sells lectures, radio shows, and audio books via the Web.

Audible's products, which will be available this fall, won't be shipped by parcel post, the way delivers books. Instead the digital bits of sound will be downloaded from into Audible's $250 palm-size digital player, which hooks up to your PC's serial port. Overnight you might download a selection of programming, ranging from a chapter of the latest Grisham novel to that day's installment of National Public Radio's Fresh Air or a Stanford Business School seminar. The next morning you can plug in earphones and listen during your StairMaster session. Or you can play back the recording during your morning commute--the recorder emits an FM signal that your car radio picks up.

Katz notes that 12 million people buy books on tape, and says at least some of them are "addicted. I've met people with $1,200-a-year habits." Given Audible's low prices (a downloaded book will cost $10 less than the average book on tape) and eclectic offerings (the site boasts 10,000 hours of content), Katz figures he has a competitive product.

Until now, Audible hasn't drawn attention to itself--partly because it's headquartered in a New Jersey mall. It's not exactly Silicon Valley, but as has made clear, people hungry for good content don't care where it comes from. --Tim Carvell

AUDIBLE Wayne, N.J. Founded 1995 Employees: 40 Revenues: N.A. Private



Business meetings with Headspace founder Thomas Dolby Robertson--a former pop singer whose 1982 hit "She Blinded Me with Science" helped usher in the techno-music era--are unlike ordinary high-tech schmooze-fests. Says Dolby: "I can't tell you how many times I've met with some Silicon Valley CEO, and he'll tell me how he remembers bonking some girl when he was a grad student at MIT and my music was on the radio."

Dolby is still better known for "Science" than for Headspace, the audio software outfit he founded with his business manager, Mary Coller, in 1993. That may soon change. Headspace has just released software that could radically improve the distribution of digitized sound on the World Wide Web.

Up to now, lack of convenience and high cost have gotten in the way of sending good sound across the Net. Most music files are so big that downloading them takes ages; PC owners who want high-quality playback have to shell out a couple of hundred dollars for a high-end 32-bit add-on sound card. (Almost all PCs sold in the past two years came with a built-in 16-bit sound card.)

Headspace software solves the problem at both ends of the pipe. Beatnik Editor ($99) enables Website designers and computer music composers to encode rich sounds in small files. The Beatnik plug-in, meanwhile, is free to anyone with a Web browser who visits Headspace's Website. It deciphers snippets of musical code as they are downloaded onto your PC and plays them back instantly as high-fidelity stereo--no add-on hardware required.

Beatnik can transform a Website. Many sites offer a blast of music when you first open them up, but now they can feature sound that moves with you as you click your way through. At Seven-Up's, for instance, you'll find a U.S. road map marked with musical notes. Move your cursor across the country, and the 7-Up jingle morphs into the music of that region (grunge in Seattle, salsa in Miami, and so on). "So far, Web advertisers have had to rely on passive banners, which users are learning to ignore," says Dolby Robertson. Thanks to him, advertisers now have a more creative and provocative way to get their message heard--literally. --Erin Davies

HEADSPACE San Mateo, Calif. Founded 1993 Revenue: N.A. Employees: 17 Private



You'd never know it to look at her, but Katrina Garnett is a genuine nerd. The 35-year-old entrepreneur has nails and hair for days, wears Armani as if she was born to it, and has a perfect Crest smile. But get her started on Crossroads' ability to make corporate computing applications work together, and you realize--as the technical details and acronyms fly--that you're sitting across the table from an engineer.

Crossroads is in the business of making really expensive glue. It designs software that enables incompatible "enterprise applications" to work together. You'd think programs that handle a large company's human resource functions, such as employees' 401(k) plans, would work with the programs that manage payroll. They don't. These applications were never designed to talk with each other. So what's a company to do? Hire a big consulting firm and pay perhaps $2 million for a custom solution that gets the applications to communicate? Such work typically takes months and is often obsolete the moment the corporation decides to upgrade one of the applications.

Australian-born Garnett says Crossroads will offer an alternative. This fall the company plans to introduce software that builds bridges between incompatible applications. The solution requires competing enterprise-software developers to open their programs' specifications to Crossroads. To date, seven companies have agreed, including PeopleSoft, Baan, Vantive, and SAP, the world's largest vendor. Garnett says that while exact pricing hasn't been determined, low-end Crossroads software may cost about $200,000. A number of prospective customers are testing the product.

With corporations frustrated by the high cost of operating and maintaining internal networks, the time may be right for the Crossroads kind of solution. That helps explain why SAP and Ernst & Young are among the company's biggest investors (others include Michael Dell and Frank Quattrone, CEO of Silicon Valley investment house DMG Technology). Garnett and her husband, Terry, now a venture capitalist, developed the idea for their product and founded Crossroads with $3.5 million of their own money after leaving their previous employer, Oracle Systems, and cashing in their options.

Katrina spent another $500,000 to establish the Garnett Foundation, a nonprofit that encourages young girls to pursue careers in math and science. This summer she'll send 50 teens to a women-in-technology conference in San Jose to meet some of the powerhouse females in high tech. Maybe she should just invite them to Crossroads. --Janice Maloney

CROSSROADS SOFTWARE Burlingame, Calif. Founded 1996 Revenue: N.A. Employees: 43 Private



Perhaps the true measure of a cool company is how far its CEO is willing to go for a prank. Brian NeSmith, chief of Ipsilon Networks, sneaked into work one weekend with founder Tom Lyon to build a miniature house around the cubicle of an engineer who was always complaining about the lack of privacy in the office. The engineer settled happily into his new digs, but NeSmith and Lyon's next trick will affect a lot more than one disgruntled engineer. The two are shaking up computer networking, and this time the joke could be on Cisco Systems, the $6-billion-a-year giant that commands an 80% share of the market for routers.

Today networking hardware is dominated by routers and switches. Routers are highly intelligent traffic directors but can cause delays when traffic gets heavy. Switches are fleet yet somewhat unsophisticated. Last year Ipsilon put the best of the two together when it unveiled its IP switch, a hybrid that combines the smarts of a router with the speed of a switch. (IP stands for Internet protocol, the basic coding scheme for data on the Internet.) Now practically every networking player except Cisco is getting behind the Ipsilon approach.

Lyon came from Sun Microsystems, where he was part of a group known as the "networking misfits" and an original member of an industry forum that set standards for a superfast data-communications technology called asynchronous transfer mode (ATM). The Internet's rise stalled sales of ATM hardware, since the two kinds of networking were incompatible. Leaving Sun, Lyon started Ipsilon to develop a switch that solved the problem of sending IP traffic via ATM hardware. Now he's done it.

Lyon's goal is to edge out routers with his considerably faster and cheaper switches. Cisco's response: A "tag switching" technology that performs a similar function to Ipsilon's product. To challenge Cisco, Lyon has signed up the like of Cabletron, DEC, NEC, and Hitachi to endorse, or license outright, his software. Cabletron provided extra ammunition by investing $20 million in Ipsilon. Fred McClimans, head of Current Analysis, a technology research firm in Ashburn, Va., describes Ipsilon as "the cosmic glue" rallying companies against Cisco.

It may be a while before the anti-Cisco joke gets to its punch line. While Ipsilon has changed the way people think about networking gear, it is still an unprofitable upstart that's far from recovering the millions it has pumped into research and development. --Erick Schonfeld

IPSILON NETWORKS Sunnyvale, Calif. Employees: 120 Founded 1994 Revenues: $7 million Private



Jonathan Nelson, founder of Organic Online, a Bay area Website designer, wanted to do a better job for his clients, which include Levi Strauss and Microsoft. He wanted to understand how users navigate the Web; what compels them to visit a site and click on a page; what motivates them to check an online advertisement. In short, Nelson, 29, wanted to understand the migration patterns of Internet users so he could create sites where webheads were more likely to land.

He tried dozens of the available software packages for tracking Web use--you'd need a tracking service to keep up with all of them--but none met his needs. So Nelson decided to build his own. He launched a research project code-named Plum, and attracted $6 million from investors like venture capitalists Mohr Davidow, biotech superstar Genentech, and Intel co-founder Gordon Moore.

The eagerness of such backers convinced Nelson that Plum should be its own company. While he stayed at Organic, he also became chairman of the new company and persuaded Bob Page, Sun's chief networking scientist, to become Plum's chief technology officer. Page agreed on one condition: "Plum" had to go. He didn't want to work at a place named after a piece of fruit--look where that had gotten Apple. As his first bit of programming for Plum, Page wrote a bit of Unix code that, when combined with an online dictionary, cooked up new names. Employees took a vote on its suggestions, and Plum became Accrue Software.

Page approached product development with the same attention to detail. Unlike many of its competitors, Accrue's program--named Insight--doesn't just maintain logs of activity on the Web servers. Instead the software records traffic across the network, providing a more accurate reading of user behavior. For instance, most Web trackers register a "hit" whenever a user clicks on a page--even if he or she then presses the stop button and never bothers to view the content. Since Insight follows the user's activity on the network, it knows to register such activity as a "reset" rather than as a full-blown hit. With the help of such distinctions, the software traces the path a user took to get to an ad, how long he or she stayed, and whether the visitor bought anything.

Accrue's software starts at a pricey $15,000. "We are not the tracking tool for the masses," says Simon Roy, a former McKinsey consultant who joined last May as CEO. Customers include GM, Perot Systems, and National Semiconductor.

Accrue now faces the worst nightmare of every software startup--competition from Microsoft. In March, Microsoft acquired Interse, a Sunnyvale, Calif., company that analyzes Website traffic. According to reports from Redmond, Microsoft will integrate Interse's software into its BackOffice suite of server applications. Roy is unimpressed. "The market is coming to us, and that's a good spot to be in," he says. We'll soon see. --Janice Maloney

ACCRUE SOFTWARE Sunnyvale, Calif. Founded 1996 Revenue: N.A. Employees: 32 Private



Juno Online has a simple mission: e-mail for everybody. By unbundling it from other Web services, Juno aims to make E-mail as ubiquitous as the telephone. The company has attracted hordes of converts--including even technophobes--while pioneering an advertising market. How? By offering the service for free.

Before Juno, the only way to get E-mail was to subscribe to an online service like America Online or an Internet access provider. Juno founder David Shaw and president Charles Ardai realized that for many people, the only reason to go online is to send and receive E-mail. So why pay for an online service?

The idea behind Juno is to attract E-mail users with free permanent addresses and then make money by selling advertising. Anyone with a PC and a modem can download the E-mail software from Juno's Website. When they sign on for the first time, subscribers provide some basic demographic information like age, hometown, gender, and hobbies. After that, whenever members log on to pick up their E-mail, a full-page ad fills the screen. Later, as members read the messages, smaller ad banners flash and dance around above. Juno uses the profile data to target the ads: A banner from American Airlines, for instance, appears only on the screens of people who identify themselves as frequent travelers.

More than two million members have signed up since the launch in April 1996, making Juno the No. 2 E-mail provider, after America Online. When "millions of eyeballs" more are logging in every day, says Ardai, Juno will be in a prime position not just to sell ads but also to promote direct sales to subscribers.

Till then, the challenge is to avoid the vicious spiral that has nailed at least one other company: You can't attract advertisers until you get enough members, but serving members before advertisers arrive is expensive. The competitor, Freemark Communications, ran out of money and folded last year before it could reach critical mass. Juno is in somewhat less danger--it is funded with $30 million from investors that include Shaw's own high-powered hedge fund company, D.E. Shaw.

While Juno doesn't project a profit until 1998 at the earliest, some 50 corporate advertisers--including American Express, Bristol-Myers Squibb, and Ford Motor--have signed up. They are betting that Juno can grab customers' attention where other online services have failed. Besides, the price is right: Juno charges advertisers around a nickel each time it shows a user an ad--not a bad deal compared with the 70 to 80 cents it costs to send one piece of junk mail. --Jeanne C. Lee

JUNO ONLINE New York Founded 1995 Revenues: N.A. Employees: 110 Private



"Ick" and "supercooties!" don't usually rate as desirable responses from a focus group, but that's exactly the feedback executives from Purple Moon were seeking when they asked young boys to test-drive their interactive software. The company makes adventure games, but strictly for gals. "We wanted to create a brand name that said girl," says Purple Moon CEO Nancy Deyo, who explains that boys--here's a shocker--are apt to snatch a toy or game from sis if it attracts their attention. That's one reason Deyo's software comes in a distinctly girly purple box.

The emerging girls' entertainment market can do just fine without boys, say analysts. They estimate that girls between the ages of 7 and 12 constitute an untapped software market worth $4 billion to $6 billion a year. Some experts predict the introduction of as many as 200 CD-ROMs and online products for girls this year, a tenfold increase over 1996.

Ironically, it took good old Barbie to show software execs that girls are ready for high-tech play. Last year, a software package hit the market that lets young girls fashion outfits for a digital Barbie. "In one quarter, the girls' software market went from zero to $15 million," says Deyo. "It blew the lid off the myth that young girls won't use a computer as an entertainment medium."

Despite Barbie, Brenda Laurel, Purple Moon's co-founder and lead designer, knows that most digital products for girls are likely to tank. Before developing a single character or writing a line of code, the 20-year industry veteran spent four years researching the market at Interval Research, the secretive development firm established by Microsoft co-founder Paul Allen and Silicon Valley entrepreneur David Liddle. The order of the day at Interval is to incubate companies built on the convergence of technology, communications, and entertainment. Purple Moon is one of three startups the outfit has helped launch.

Purple Moon has three CD-ROM titles in development. Rockett's New School and Secret Paths in the Forest are scheduled for release this fall, each priced under $30. The adventures center around a cast of prepubescent girls. In Rockett's New School, users get to pretend they're Rockett Movado, the new girl in school. Using "secret" notes in other kids' lockers and inside Rockett's backpack, they make decisions about issues like whom Rockett will befriend.

Since most girls seem to find traditional computer stores the retail equivalent of football locker rooms, Purple Moon will focus on less traditional outlets like bookstores, toy stores, Wal-Marts, and Price Clubs. Purple Moon will also introduce a character-hosted Website where girls can chat with one another and purchase related merchandise. Let's hope the boys don't go for those purple Rockett backpacks. --Janice Maloney

PURPLE MOON Palo Alto Founded 1996 Rev.: None Employees: 30 Private



After several happy years with Compaq, Doug Johns was tapped in 1991 to fix an ailing multibillion-dollar division. He put what one colleague calls a "total, complete, almost obsessive emphasis" on cost control. The doggedness did wonders for Compaq's results but wreaked havoc on Johns: 75-hour weeks became the norm. He quit, at age 44, after just 24 months.

Today Johns is working again, running Monorail, his own PC startup. Yes, the name is supposed to make you think of Disney World, because to Johns, life now seems like a vacation. "I'm a reformed workaholic," he grins. Whereas he once lorded over some six million square feet of factory space around the world, he now oversees little more than a small, quiet office suite in a suburb of Atlanta. If he's still around at dinnertime, jokes chief technology officer Dave Hocker, "we'll go look in Doug's office and say, 'Doug, it's 6:15. Do you know where your family is?'"

Monorail computers are not your garden-variety PC. The monitor, which is smaller than those that come with most PCs, is a flat-panel color display encased in black metal. Built into the display casing are the guts of the machine: a Pentium-class processor, high-speed modem, CD-ROM drive, speakers, memory, and microphone. Keyboard and mouse plug into a port on the back. The whole thing is barely larger than an unfolded laptop. It runs Windows 95 and, depending on the speed of the processor and the size of the monitor, costs anywhere from $799 to $1,499.

As interesting as the machine is the way in which it was designed. Johns and his colleagues first decided on how they wanted to assemble and distribute the machines, and how they wanted to ship them. They then agreed that the PC would come equipped for fast Internet access, would sell for under $1,000 (the target market is consumers with household incomes under $40,000), and would be small enough to ship in a standard FedEx box (19 by 19 by 9). Only then did they make the product.

Johns created a virtual company to build and support the Monorail computer. Phelps Technologies, an assembly operation in Kansas City, Mo., warehouses all the Monorail components and builds machines only when orders come in. Sykes Enterprises in Tampa provides technical support over the phone. FedEx fulfills orders and collects payments. The Monorail staff handles product development, marketing, and logistics coordination--period.

PC Data, a research firm in Reston, Va., says Monorail is the 13th-largest retail PC vendor in the U.S. Johns wants annual sales of at least $2 billion by 2003. But get this: If Monorail works according to his design, that won't require more office space--or CEO overtime. --Eryn Brown

MONORAIL Marietta, Ga. Founded 1995 Revenue: N.A. Employees: 45 Private



Before Documentum came along, AlliedSignal had a problem. Its aerospace unit redesigned engine parts over and over because there was no efficient way to check whether the drawings existed in its trove of engineering diagrams. Now, using Documentum's software, engineers can easily search more than 700,000 scanned diagrams and avoid duplicating efforts.

Conventional database software has difficulty cataloguing this kind of information--it doesn't fit neatly into set categories. Documentum's database--in techie terms, an object-oriented layer on top of a relational database--organizes and automatically updates the "unstructured" information in a company's electronic documents, be they product diagrams, sales proposals, contracts, operating procedures, photos, design specifications, or regulatory filings. The software will soon let Ford Motor, for example, deliver current promotion, warranty, and manual information to dealers via the Web. In the past, the dealers had to call a support center, where poor souls wrestled with unwieldy three-ring binders to find such information, which was often out of date.

Documentum first customized its software for pharmaceuticals companies, whose new-drug applications to the FDA can run to 500,000 pages each. Anything that speeds the filing process can help get drugs to market faster. CEO Jeffrey Miller targeted two heavyweights, Merck and Glaxo. After they signed up, the rest of the industry followed; now no fewer than 45 of the world's top 50 drug companies use the software. Documentum has also become popular among transportation, chemicals, and construction companies.

Lately the company has turned its attention to the Web itself, the world's largest collection of electronic documents. The problem with the Internet and corporate intranets, says marketing director Larry Warnock, is that they often "give employees ubiquitous access to the wrong information." Documentum's software helps users find Web data they really want. In fact, the technology handles records so well that companies like Autodesk, which makes 3-D graphics software for engineers, and SAP, which designs enterprise-wide applications to manage such functions as human resources, offer it as adjuncts to their products. Documentum gets a fee each time an SAP, PeopleSoft, or Autodesk user runs its program.

The company got its start at Xerox Parc, the legendary research lab that spawned such innovations as the graphical user interface and the Ethernet networking standard. This time Xerox is making money from its creation. Though it owns less than a quarter of Documentum, Xerox's initial $10 million investment is now worth $200 million. --Erick Schonfeld

DOCUMENTUM Pleasanton, Calif. Founded 1990 Revs.: $45 million Employees: 360 Nasdaq: DCTM



If Silicon Gaming has its way, playing the slots will never be the same. The company has married Silicon Valley tech with Las Vegas glitz to create Odyssey, a slot machine powered by an Intel chip. Gamblers at almost 30 casinos in Nevada and California, including the Hard Rock and Bally's, have been playing Odyssey for a few months now, choosing among six software options that put a videogame twist on stalwarts like Keno and poker.

Each game offers live-action characters, audio, and video clips--five-card draw, for instance, is set on a 19th-century riverboat. Players use a touchscreen for selecting, but to make sure the middle-aged crowd that favors the slots doesn't find this digital one-armed bandit too weird, Odyssey still has an arm you pull to start. The jackpots are analog too: The machine pays out in cold, hard cash.

Silicon Gaming is the creature of Andrew Pascal, 31, who now oversees marketing and game development. A nephew of Mirage Resorts CEO Steve Wynn, Pascal worked the slot-machine floors in his uncle's casinos for years before coming up with the idea. (Wynn has no financial stake in Silicon Gaming.) Pascal recruited Don Massaro, 53, a veteran of several high-tech startups, as CEO. "I thought I had spent too many years in college to build slot machines," says Massaro. "But this company has great technology."

That matters little to the average gambler, who's 48 and more apt to think of chips as things you cash in, not program. Most Silicon Gaming employees, on the other hand, are in their 20s or 30s--shorts and Hootie and the Blowfish baseball caps are standard garb. To bridge the culture gap, Pascal launched what he calls Project Elvis: Employees work on the casino floors for a few weeks before they try to bend traditional games into digital settings. One slot game in the works features an onscreen Carmen Miranda--the fruit on her head spins when you pull the lever.

Winning a big share of the $17-billion-a-year market won't be easy. Industry titan IGT, which makes conventional slots, controls 75% of the market. State gambling regulations required Silicon Gaming to go public before it could sell a single machine or recoup any of the $20 million loss it has incurred since its inception. So far, the stock's performance has been lackluster.

But the company's long-term prospects are intriguing. Pascal wants to network machines so that all the slots on the floor would noisily celebrate a gambler's win--thus encouraging others to play--and so gamblers in one casino could compete with those in another. "All these operators are trying to differentiate themselves by building huge resorts. We want to offer an alternative," says Pascal. If government regulations on interstate gambling ever loosen up, Pascal might be the man to bring Lady Luck online. --Henry Goldblatt

SILICON GAMING Palo Alto Founded 1993 Revenues: None Employees: 140 Nasdaq: SGIC



What a difference six years makes. In 1991, Photodisc president Tom Hughes sat at a makeshift desk of two sawhorses and a plank. To boost morale, he rang a bell each time he made a sale. Today Hughes, 38, and CEO Mark Torrance, 51, work in a bright loft in downtown Seattle, surrounded by striking photography and an army of chirpy twentysomethings. Everyone sails on the weekends, frequents artsy company-sponsored charity events, the works. The good idea that led to the good life? Selling stock photography electronically.

Many of the photographs in magazines, ads, and annual reports are stock photos. Traditional stock houses contract with photographers, license their work to clients, and take a cut of the royalties each time a photo is used. The houses showcase the photos in catalogues and fill orders by sending actual transparencies.

PhotoDisc contracts with photographers too, but pays them just once for their work. Then it scans the images into digital form and offers them for a flat fee (averaging $50) to anyone who visits the company's Website. Buyers can use the photo as often as they want, in whatever format they want. Photodisc also distributes pictures on moderately priced CDs ($199 to $299).

Doing business this way meshes perfectly with the rise of electronic publishing. Unlike traditional collections, digitized photos are easy to archive and search. And unlike a stock photo shop, the Photodisc Website never closes; images can be bought and downloaded day or night, satisfying the needs of Jolt Cola-fueled Website designers everywhere. Joe Crowley, an associate creative director at Grey Advertising in New York City, says he created the entire Website for the fat substitute Olean ( using only PhotoDisc images. "They're not cheesy, or out-of-the-can looking," he says. The idea is so persuasive that PhotoDisc has attracted several competitors, including Picture Network International in Arlington, Va., and West Stock in Seattle.

Some photographers look at PhotoDisc and its ilk with ambivalence, uncomfortable to see digital versions of their work dispersed across the Web--especially when they only get paid once. CEO Torrance says he does everything he can to mollify the shutterbugs; they are, after all, his suppliers. Besides, repackaging creative materials is old hat to him: Torrance used to be president of Muzak, the background music company that brought rock & roll to elevators everywhere. --Eryn Brown

PHOTODISC Seattle Founded 1990 Rev.: $28 million Employees: 186 Private



Whenever data are converted from pulses of light pumping through fiber-optic cables into electricity flowing through silicon and copper, communication slows wa-a-a-y down. Such delays used to be a necessary evil--flaws in fiber-optic strands cause signals to weaken, and strengthening them always entailed transforming the signals from light to electricity and back again. That's where Uniphase comes to the rescue: Its ground-breaking products keep data speeding through fibers with fewer holdups than previously thought possible.

Wall Street certainly likes the idea of photons freely flowing: In the 43 months since Uniphase went public, its stock has risen 1,370%. The capital gains don't stop there--Uniphase is the sole supplier of optical chips to Ciena, a Maryland maker of fiber-optic systems. Ciena's recent $3.4 billion IPO was the largest in history for any company backed by venture capital (the old record holder was Netscape).

The Uniphase product that helped stir this enthusiasm is a chip that acts like a shutter in front of a laser beam. It makes the light flash to represent the digital ones and zeroes computers use to communicate. The light doesn't actually switch on and off, a process that would cause distortion and delay; instead, it's filtered through lithium niobate, an exotic material that can be either transparent or opaque to create the on-and-off effect cleanly.

Such chips are key to Ciena's systems; they play a role in a technology that Ciena is deploying known as wave division multiplexing. The technology lets optical fibers carry much more information than in the past. Result: Communications companies can increase capacity without digging up the ground and laying more fiber.

Before Uniphase became known for optical chips, it made laser products that can be found in everything from grocery checkout scanners to sequencers in the Human Genome Project. Last March, Uniphase bought IBM's laser business for $45 million; the unit supplies 70% of all so-called pump lasers that amplify weakening fiber-optic signals as they travel between cities. Now the signals can be amplified in a completely optical environment, avoiding the light-electricity-light slowdown.

Uniphase's ultimate goal is about as modest as its stock growth. "We want to be lords of the photon," says CEO Kevin Kalkhoven. He's certainly got the right work force to have a chance at success: Nearly 70 of Uniphase's 500 employees have Ph.D.s in physics. --Erick Schonfeld

UNIPHASE San Jose Founded 1979 Revs.: $70 million Employees: 500 Nasdaq: UNPH