(FORTUNE Magazine) – It wasn't quite the dot-com craze, but back in the early 1990s there was a burst of excitement for what was called the virtual corporation. The idea--a great one, really--came from a book of that title written by Bill Davidow, a fellow venture capitalist and entrepreneur. His insight was basically that with outsourcing and networks, companies could pull together resources to address specific projects and objectives without having to build permanent organizations.

Oddly, the biggest impact of Davidow's thinking has been in IT. The virtual company, it turns out, has more to do with technology than with personnel. Now, ten years later, we're at the beginning of a major transformation, in which far-flung networks can expand and contract as needed and are easier to understand and administer. That means changes not only in how companies oversee their IT resources, but also in how suppliers build and sell systems.

It helps to think of the development of technology for business in three waves:

--Wave One. From the 1950s through the 1970s, computer makers pushed mainframes and minicomputers. They would sell businesses on ideas for what computers could do and would build systems around particular projects. Those systems tended to be unique, expensive, and hard to maintain, but they worked.

--Wave Two. In the 1980s and 1990s businesses understood what computers could do but wanted a more versatile approach. With the advent of personal computers and the local area network, IT departments began building infrastructure that would solve multiple problems.

--Wave Three. Today the level of interconnectedness is even greater. As computers and networks become commodities, companies are learning they can reduce costs and make the whole jumble a lot easier to manage. Suddenly it doesn't matter what server or storage unit you buy or where you put it. It all looks like one integrated system. That's virtualization.

As this idea sweeps through companies, it is enabling them to rethink how they build their infrastructure.

Take storage. With the ever-increasing speeds and capacities of networks and the Net, the amount of data being stored at large companies is growing even faster than the cost of storage equipment is declining. That puts pressure on users to economize. Instead of continuing to buy and add new devices dedicated to each computer, companies are using techniques called "storage area networking" and "network attached storage" that concentrate resources in one or a few locations. The stored data are then available to any computer that needs them. Instead of having storage devices scattered around the world that sit unused or fill up on their own, the whole system looks to an IT manager like a giant--or virtual--storage device.

IT departments are now thinking about how to virtualize the rest of their resources. Here are some of the possible outcomes of that process:

--Server consolidation. Ironically, computers that are used as servers have become so cheap and plentiful that their sheer numbers have become a problem. Many companies are trying to consolidate by buying massively powerful servers that use similar, standardized technology and do the job of hundreds of the cheap machines. That enables systems to be centralized in locations where it is easier to manage the machinery and software.

--Death of appliances. A great concept that emerged during the dot-com era was the idea of a "server appliance," a machine dedicated to one application that could just be plugged into the network without any fuss. Lots of startups focused on selling appliances to large companies, leading to the same phenomenon as above: too many devices that were too hard to keep track of and manage. Now companies prefer to serve applications from those much-larger machines, which can handle multiple programs and be managed centrally. Eventually this will allow any application to run anywhere in the network without regard to which piece of hardware it is being served from.

--Reemergence of application service providers. For applications that aren't critical to running a company, it often makes sense to "rent" the program from an application service provider (ASP). Many people thought the ASP idea died in the dot-com crash, but several companies--like Webex and Salesforce.com--have emerged as successes.

--Web services tools. Web services is a sexy idea (for geeks) that allows you to write new applications by using the code for existing applications as the starting point. That makes the process for creating new programs much faster. But for web services to work, the applications have to be designed so that they can be available from anywhere on the network and can be used by anyone writing new programs. The benefits are just beginning to be recognized.

All this adds up to a major shift for the tech industry. Upstarts like BEA are challenging Microsoft by providing software that allows virtualization. Storage giant EMC is trying to transform itself into a software company because it realizes that in a virtualized storage setting, an EMC box looks the same as one from Hewlett-Packard. Virtualization also rewards sellers of managed services, which is why IBM thinks it can win.

Just as the first two waves redesigned the innards of companies' data centers and changed the leadership of the IT world, you can expect big, real changes from virtualization.

Stewart Alsop is a partner with New Enterprise Associates, a venture capital firm. Except as noted, neither he nor his partnership has a financial interest in the companies mentioned. He can be reached by e-mail at alsop_infotech@fortunemail.com. His column can be bookmarked online at www.fortune.com/technology/alsop.