(FORTUNE Magazine) – BETTER, FASTER, smaller, cheaper ... It's the standard progression in the world of personal tech- nology. Many of the new gizmos and gadgets of 2004 were clever and useful, but a few deserve special mention for advancing the state of the art--including Apple's ingenious iMac G5, our favorite new tech product of the year. Look for the full list of our 2004 best (and worst) technology winners on fortune.com/technology.

BEST TECHNOLOGY

Voice Over IP

Remember back in the 20th century when a telephone call involved two telephones connected by a dedicated wire? Most people still make calls that way, even counting the billion-plus people worldwide who now carry wireless phones. But 2004 was also a breakout year for a new way of communicating by voice, one that uses broadband Internet connections instead of the conventional network of wires and circuit switches operated by the phone companies. Only about 400,000 American homes currently use the technology, called Voice Over Internet Protocol, but millions are expected to adopt it in years ahead.

VOIP is more than just a way to make cheap phone calls nearly anywhere in the world, and more than just a new way of sending information between two telephone handsets. It also has the capacity to radically expand the types of services and devices that people can use to communicate with each other.

Think of it this way: In coming years all sorts of wired and wireless devices are expected to be Internet-enabled, ranging from home appliances to game consoles to digital cameras. When your television gets its own IP address, suddenly it becomes another device for making and receiving voice calls. (Maybe Maxwell Smart's shoe phone from the 1960s TV show Get Smart was just ahead of its time.) The next obvious step is combining video with the voice, and--voila!--videoteleconferencing in your living room. Just beware: Your mother-in-law will now come calling on your big-screen TV, larger than life, in 5.1-channel surround sound.

The first mobile phones with wireless Internet connectivity are just starting to appear, allowing the caller to use the cheaper VOIP network whenever he wanders into a Wi-Fi hot spot. And if you are among the millions who already use Internet-based instant messaging, get ready for instant voice messaging.

Several factors contributed to the breakthrough for VOIP in 2004, including the rollout of consumer services from most of the nation's leading cable and telephone providers. But the real trigger was the ruling last month by the Federal Communications Commission that it, and not the states, has the right to regulate rates, taxes, and conditions for the estimated 400 VOIP service providers that have sprung up around the country. The prospect of 50 sets of taxes and regulations made the VOIP providers wary of expansion, but now much of the uncertainty has evaporated. And that in turn has led to an old-fashioned, bare-knuckled price war among the many providers that want to dominate the VOIP space. Service plans that offer unlimited local and long-distance calling in the U.S. and Canada now cost as little as $20 a month, with most plans falling in the $20 to $30 range. Some plans also include unlimited calling to Western Europe, and others charge just a few pennies per minute for calls outside North America.

But hold the phone. For all its promise, VOIP still has some hang-ups. It requires a broadband Internet connection, which fewer than half of all households have today, as well as a special device that connects the customer's existing phone to the Internet, converting speech into digital packets that scatter and reassemble at their destination. Sound quality can be very good but is inconsistent. And if the power goes out, so does the VOIP service. Other unresolved issues include the ability to make e-911 emergency calls, the ability of law enforcement agencies to tap VOIP calls, and access for the disabled.

But the biggest challenge may be the bugaboo that plagues the Internet itself: malware (see Worst Technology, below). Whether it is carrying voice packets or data packets, the Internet is vulnerable to spam, viruses, worms, and hack attacks.

Even so, because it fundamentally changes the way we communicate and offers cheaper phone service with innovative new features, our call is that VOIP emerged as the best technology of 2004.

BEST PRODUCT

Apple iMac G5

Apple's iMac G5 personal computer is a tour de force of engineering, combining a powerful processor, a robust operating system that (for now, at least) is relatively free of virus attacks, a suite of creativity applications like iTunes and iPhoto, and a widescreen, flat-panel LCD display, all neatly packaged in an attractive case that's just two inches thick.

As white and silent as snowfall, the iMac G5 shares its design DNA with Apple's popular iPod, which easily would have won for Most Popular Product if we awarded such a thing. The design similarities are not coincidental, and Apple is only half-joking when it suggests that the iMac G5 is the ultimate iPod accessory.

With prices starting at $1,299--which, by the way, is only $700 more than Apple's top-end iPod Photo--the iMac G5 is also a good value compared with similarly equipped Windows-based PCs.

Apple changed the shape of computing with the iMac G5--so thin it fits on a kitchen counter--and for that reason we say it's the best tech product of the year.

WORST TECHNOLOGY

Malware

Spam, worms, viruses, spyware, Trojans, phishes, zombies--what a rotten year it was for computer users.

Malware, the term for software that does bad things, had a breakout year in 2004, clogging e-mail systems, stealing valuable information, violating privacy, turning white-haired grandmothers into unsuspecting porn purveyors, and costing untold millions of dollars in lost productivity and system downtime. Evil software has been around for years, of course, but this year was different. In years past spammers and virus writers were mostly sociopathic creeps. The new malware writers have gone beyond creepy to criminal. Highly sophisticated hackers, often working for organized-crime rings, have launched global attacks to trick Internet users into revealing sensitive passwords and financial data and to extort money from businesses by threatening to shut down their computer networks using armies of hijacked zombie PCs.

This was the year that every piece of e-mail became a potential threat, and every website became a potential booby trap. The Internet lost its innocence a long time ago, but now it has also lost a lot of its fun. And for that, we say the various types of malware deserve to be called the worst technology of the year.

WORST PRODUCT

Live-shot.com

Here's the plan: Take a hunting rifle, load it with live ammunition, mount it on a motorized platform, connect a videocamera, and patch it into the Internet. Then place the gun in front of a feeding station for exotic animals on a ranch in Texas. (Where else?) With his trigger finger on the mouse of an Internet-connected computer, a hunter in, say, New York City, who doesn't have the time to actually go hunting, can pay a fee, monitor the feeding stand through a web browser, aim the rifle, and "harvest" the blackbuck antelope, axis deer, or whatever other unfortunate creature wanders into the killing zone. Hunting assistants will then butcher the animal and send its mounted head to the hunter. Unless the legislature guns it down, www.live-shot.com plans to offer the remote-hunting "service" by mid-2005. But just for the idea alone, the trophy for worst technology product of 2004 goes to live-shot.com.

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