The band released its first tracker song "Feelings" on the internet in January 1997. It was followed by the single "Dreams" in March of the same year, which became the band's first hit. The single was released on The Mod Archive, and soon became one of the site's most popular songs. When the band's official website was launched in April 1997, the popularity of "Dreams" had made a lot of people curious about the band, which resulted in a lot of visitors to their site.

The band released its first MP3 song, called "Electronic Dreams" on 27 October 1997 - making them one of the first artists in Sweden to use MP3 to distribute their music for free on the web.

In early 1998, they released their first album Dreams on the band's own label Daydream Records (4). The money from the album sales helped the band build a real studio. In October 1998, the band started using hardware synthesizers and MIDI equipment instead of tracker software. Around the same time, John Johansson departed the group and the name was changed to Lagoona.