Back before that term was even thought of we used to call it college radio as you could only hear that kind of music on certain college radio stations (I would constantly listen to WPRB Princeton). When it started to gain in popularity the radio stations needed to hang a moniker on it and the term alternative music was born sort of like this is an alternative to top 40 type of stuff.
It was great for a while but when watered down bands began to gain traction, like most things like this, it eventually faded away. Fun while it lasted I suppose.