I remember those days vividly. How do you compete with "Free?"
And, unlike today, where an alternative browser is just a click-away on a high speed link for even the average layperson, the vast majority of the world back then (geeks not included) got their browser through the channel that delivered software to them - and, for most computers users, the operating system was the ultimate channel. Downloading something as huge as an entire browser was not likely undertaken. Your average user had something like a 56 Kilobit modem back in 1998.
So, when the IE browser was free, and bundled through every-channel Microsoft could get their hands on - it was the end of times. Entire buildings on East Middlefield road, Mountain View associated with the consumer/business sales of Netscape Communicator/Navigator were shuttered. The layoffs were apocalyptic.
I'll give it to Microsoft, they certainly cut off Netscape's air supply. Of course, as a result of their actions, The United States Government decided they had violated elements of the Sherman Antitrust Act of 1890 - in particular tying, and that resulted in a decade of oversight that may have done them more harm than Netscape ever would have.
But this stopped precisely in early 1998. Such a major gain for IE from 1997 to 1998 (or before) would have made more sense based on this aspect.
[1] http://news.cnet.com/2100-1001-207681.html