Oh, our eyes have seen the glory of the coming of the Net, We are ramping up our market share, objectives will be met. Soon our browser will be everywhere, you ain't seen nothin' yet, We embrace and we extend!

-Battle Hymn of the Reorg - Anonymous Microsoft employee

It's nearly 6:30 p.m. on a Friday in mid-May. Microsoft Corp.'s lush campus looks like one of Monet's paintings--a landscape afire with the rich purples and electric pinks of springtime flowers. But no one seems to notice. In the 800-person tools division, where they make products to help developers create software, nearly half the programmers are still hunched over computers, even though for many it's now hour 13 of the workday. Empty cups of espresso and the sleeping bags hooked to the backs of doors speak volumes about the night ahead. And the next night and the next. And probably the next year.

Microsoft, already the ultimate hardcore company, is entering a new dimension. It's called Internet time: a pace so frenetic it's like living dog years--each jammed with the events of seven normal ones. Microsoft employees are pulling all-nighters to make up for the precious time the company has lost to Internet go-getters such as Netscape Communications Corp. and Sun Microsystems Inc. O.K., so we missed the first round of the Internet. Bummer,'' says Cornelius Willis, Microsoft's product manager for Internet tools. But we're mobilized now!''

Until six months ago, it looked as if Microsoft might, in fact, be lost in cyberspace. It was so far behind Internet upstarts that industry analysts wondered if the company whose software dominated the PC era might be sidelined in a new age of Internet computing.

It's easy to see how Microsoft might have missed the warning signs. In the early 1990s, while the Net was making its amazing transformation from a nerd's network to a global communications and computing medium, Microsoft was growing explosively, tripling sales, to $3.8 billion, and boosting its payroll from 5,600 to 14,400 between 1990 and 1993--all thanks to the success of Windows.

By 1993, techno-hipsters were discovering something called the World Wide Web. It let you display graphics and photos on the Net and most important, let you jump from one Net computer to another by clicking on a highlighted word. At Microsoft headquarters in Redmond, Wash., however, the Net was little more than a curiosity. I wouldn't say it was clear it was going to explode over the next couple of years,'' says Chairman William H. Gates III. If you'd asked me then if most TV ads will have URLs [Web addresses] in them, I would have laughed.''

``DRIVING EVERYTHING.'' Even if Gates and his executives had had an inkling of the Web's trajectory, they had more pressing concerns. Government regulators were in the midst of a huge probe into Microsoft's alleged anticompetitive practices. A hush-hush group was creating a service to rival America Online Inc. Another was building Information Superhighway goodies--video servers for interactive TV, programs for settop boxes, and so on. Most importantly, legions of programmers were jamming to finish what would become Windows 95.

Microsoft's public reaction to the Web remained muted until last fall, when the Web's momentum was too great to ignore--as was the threat to Microsoft. Some 20 million people were surfing the Net without using Microsoft software. Worse, the Web--with a boost from Sun Microsystems' Java programming language--was emerging as a new ``platform'' to challenge Windows' hegemony on the PC.

Gates had had enough. On Dec. 7, he staged an all-day program for analysts, journalists, and customers to show that Microsoft had every intention of playing--and winning--in the new software game. It would make Web browsers, Web servers, and ``Web-ize'' existing Microsoft programs. It would even license Sun's Java--whatever it took.

Since then, everybody in Redmond has been on Internet time. Net projects are under way in every corner of the 35-building campus. The Internet Platform & Tools Div., created in February, has swelled to 2,500 employees--more than Netscape, Yahoo!, and the next five Net upstarts combined. Slate, a high-profile Web magazine edited by Michael Kinsley, debuted on June 24. MSNBC, a cable news channel/Web site being produced with NBC Inc., begins on July 15. And Microsoft Network will be reborn as a mega-Web site this fall. Says Gates: ``The Internet is the most important thing going on for us. It's driving everything. There is not one product we have where it's not at the center.''

The impact of those products has yet to be felt, but the speed and intensity of Microsoft's offensive has already changed the calculus of competitors and analysts. ``People aren't asking anymore if Microsoft will be killed by the Internet but whether Microsoft will dominate the Internet,'' says Scott Winkler, vice-president at market researcher Gartner Group Inc.

Indeed, in just six months, Gates has done what few executives have dared. He has taken a thriving, $8 billion, 20,000-employee company and done a massive about-face. I can't think of one corporation that has had this kind of success and after 20 years, just stopped and decided to reinvent itself from the ground up,'' says Jeffrey Katzenberg, a principal of DreamWorks SKG, which has a joint venture with Microsoft. What they're doing is decisive, quick, breathtaking.''

Gates, a keen student of business history, has been intensely aware of how other market-leading companies--from General Motors Corp. to IBM--have stumbled when their top executives failed to read the signs of fundamental change in their industries. Tackling that problem was a prominent theme in his best-seller, The Road Ahead, published last fall. ``I don't know of any examples where a leader was totally energized and focused on the new opportunities where they totally missed it,'' he says.

Our competitors were laughing, said our network was a fake,

Saw the Internet economy as simply theirs to take.

They'll regret the fateful day

The sleeping giant did awake,

We embrace and we extend!

Here, for the first time, is the inside story of Microsoft's dramatic turnabout. It's a tale full of twists, turns, miscues, and even a fatefully timed illness. And it's a story of how three young programmers became Net preachers, spreading the gospel and peppering management with E-mail that eventually helped get Gates and his team to act.