The year of the Web start-up.

Even as first-generation consumer Web businesses like Yahoo and America Online solidified their positions and amassed staggering Wall Street values, key employees deserted their posts to get in on the booming start-ups scene. The second generation of Web businesses, in fact, is fueled largely by the experience of veterans of firms like Netscape, Yahoo and Microsoft. In 1999 that second generation made its presence felt with new sites and services devoted to commerce, navigation and online versions of applications traditionally found on the computer desktop. Those Web veterans have launched this second round of companies with unprecedented speed and cash flow. It_s been a record-setting year for venture and angel investments made in Internet start-ups, at $10 billion and counting, according to PriceWaterhouseCoopers. In the third quarter alone, Internet companies received more than $5 billion in funding, accounting for more than half of all VC investments for the period. On the Web, an area that saw some of the most fervent activity was the business of providing productivity applications online. The trend sprang in large part from the enormous success of Hotmail, a site for Web-based free email accounts, which Microsoft acquired last year. Still, 1999 brought the launches of Web sites offering not only email but calendars, address books, file storage, spreadsheet programs and, increasingly, complete suites of applications. Outside the courtroom, Microsoft is preparing a response to that competition with plans to put some version of its Office suite of productivity applications on the Web. Meanwhile, one start-up, NuoMedia, is trying to beat Microsoft at its own game by offering Office-compatible applications on its Web site. Another Web application trend in 1999 was the idea of publishing an application programming interface (API), programming shortcuts to let developers create their own Web-based programs to sit on a site that aggregates them. Sites pursuing this strategy include Desktop.com and Myinternetdesktop.com. A corollary from the year_s start-ups was the attempt to replace the PC hard drive, offering free storage space through a Web site. Sites offering storage on the Web include My Docs Online, FreeDrive, Freediskspace.com and Web application veteran Visto. Technology mainstays of the first-generation Web businesses, including chat, search and navigation, staged a start-up resurgence in 1999, refining those established technologies. In the chat and instant messaging arena, standard-bearer AOL and second-rung players Yahoo and Microsoft face innovative challenges from companies that bring chat applications to the Web, letting visitors to a particular Web site chat with each other. "2000 will be the best and the worst year for start-ups," predicted Danny Rimer, partner with the Barksdale Group. "A lot of these companies in the private world, where you don't have any liquidity and can't trade the stock in for dollars, are getting valuations that only have been seen in the public space.