It was the late 90s. The 993 was still air-cooled (and oil-cooled); the 996 was the first water-cooled 911. I think that started with the 1998 model year.
Water (and glycol) cools more effectively than oil does, I believe. And air is notoriously difficult to get to where you want it, and does not transfer heat as well as water does. Water also serves as a very effective sound absorber when it is run around some of the noisy parts, like cylinders, parts of the head, etc. And the uneven cooling from oil and air keeps you from controlling the combustion cycle as precisely as you want to make good power and low emissions.
-soD
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