(FORTUNE Magazine) – CAST YOUR MIND BACK TEN YEARS. A COMPANY called Netscape is busy engineering a tool for browsing the Internet. Jeff Bezos is polishing his business plan for a company called Amazon. And jeans maker Levi Strauss announces something just as revolutionary: It will begin offering customized versions of its classic denims to fit every woman's body type.

Revolutionary? Absolutely. Back then, if you wanted a product, you basically had two choices: You could buy a mass-produced item--a pair of jeans, a car--that was affordable but perhaps not exactly what you wanted. Or you could commission a custom-made item that was perfect for you but cost a pretty penny. There wasn't a whole lot in between. No surprise, then, that mass customization--that sweet spot between harnessing the cost efficiencies of mass production and offering so many different options that a customer feels the product has been designed just for him--is the Holy Grail of the manufacturing world, according to cultural critic Virginia Postrel, author of 2003's The Substance of Style. Says Joe Pine, author of Mass Customization, the definitive 1993 book on the subject: "Companies have to get out of the commoditization trap, and one way of doing that is customizing that product down to the individual."

But with a few notable exceptions, such as Dell PCs, success has proved elusive. Walk into the Levi's store in Manhattan's SoHo neighborhood today, and you won't find an employee armed with a tape measure anywhere. "We no longer do that," says a saleswoman, with a "What planet have you been living on?" stare. Similar attempts from that decade--like Mattel's customized "friends of Barbie" dolls and General Mills' customized cereals--are also on the scrap heap, casualties of round one of mass customization. Companies pulled the plug for several reasons: Ordering the products required too much work by customers, manufacturing was problematic, and customers weren't willing to pay enough to make the products profitable.

We've entered round two. A new crop of contenders, including Lands' End, Nike, M&M's, and even the U.S. Postal Service, has jumped into the world of made-to-order for the masses--and some look to be finally succeeding. Faster and more ubiquitous Internet technology has made ordering such goods easier. And more flexible just-in-time manufacturing methods, coupled with the rapid proliferation of digital technology, have enabled companies to fill individual orders much more quickly than in the past.

Apparel is the area that's seeing the most action. One reason: "Current sizing fits only about a third of the population," says Auburn University consumer affairs professor Lenda Jo Connell. Clothing makers see mass customization as a promising way to reduce waste. Even though apparel makers produce at the lowest possible costs, says Pine, "they end up with tens of billions of dollars of inventory every year that's thrown away or put on fire sale because they didn't have what somebody wanted in the size or colors." Then there's customer loyalty. Once someone has entered her measurements in your database, she has a powerful incentive to keep right on ordering from you.

Target and J.C. Penney both launched online clothing-customization programs this year. But perhaps the biggest success story is casual-wear maker Lands' End (a unit of Sears). The company wanted to avoid a Levi's-style model, which required customers to enter a retail store and get measured by an employee wielding an old-fashioned tape. That was too much to ask of Lands' End customers, decided Bill Bass, SVP of e-commerce at Lands' End and general manager of Sears' customer direct program.

So after a brief experiment with high-tech body scanners in 2000 (the technology proved too time-consuming to use and couldn't reach all the company's customers, says Bass), he hired a firm now called Archetype Solutions. Archetype had developed a series of algorithms that pinpoint a person's body size by taking just a few of his measurements and then running them against a huge database of typical sizes to create a unique pattern. The customer provides the information on Lands' End's website by answering a series of 15 questions (for pants) or 25 questions (for men's shirts) about everything from waist size to inseam. (Yes, that does mean the customer must whip out a tape measure at home.) The process can easily take 20 minutes, but since Lands' End saves the data on its website, reorders are a snap. The order zaps to Archetype's office in San Francisco, where its software generates a pattern and zaps that to one of five contracted manufacturers in the U.S. and overseas. Those plants cut and sew the material and ship the finished garment directly to the customer.

Today customization is available for most categories of Lands' End clothing. Around 40% of its shoppers choose a customized garment over the standard-sized equivalent when it is available, even though each customized garment costs at least $20 more and takes about three to four weeks to arrive. How profitable are the individualized duds? Margins are the same as for noncustom Lands' End products because, the company says, it is keeping prices low enough to attract new customers and retain the old ones. Now, just three years after they were launched, the customized clothes account for "a growing percentage" of Lands' End's $511-million-a-year online business, says company spokesperson Anna Schryver. What's more, "customers who customize are more loyal." Reorder rates for Lands' End custom-clothing buyers are 34% higher than for buyers of its standard-sized clothing.

Not every apparel maker has given up on the promise of sophisticated body scanners. For three years Brooks Brothers has been using such a scanner in its New York City flagship store--a $75,000, ten- by 14-foot model first manufactured in 2001 by [TC] , a not-for-profit coalition of companies including J.C. Penney and Jockey whose research is backed by the U.S. Commerce Department. After disrobing and slipping into gray knit boxer shorts, male shoppers (the system has not yet been programmed for women) hold two handlebars while white light bounces off the walls for 12 seconds. In that snippet of time, the system collects 300,000 data points. Almost instantly a three-dimensional image appears on a computer screen. The virtual reality can be harsh; a saleswoman says one shopper's scan prompted him to drop 100 pounds. But the system is accurate enough to get you within an eighth of an inch of perfection.

Your suit arrives within three weeks. The price: $1,100 for a three-button Italian wool model, vs. $800 for a comparable noncustom one. That's a significant premium, especially since Brooks Brothers would hand-tailor that same suit for only $200 or $300 more. But for some men, the price isn't a major deterrent. "I've paid for more expensive suits that I don't think were well tailored," says Dan Pelson, 38, a media entrepreneur who was scanned recently and is awaiting delivery on two shirts and two suits. "It's worth the additional cost to have some suits and shirts that really fit."

From Brooks Brothers' perspective, one of the scanner's most valuable qualities is its potential to slash inventory. "I see $200 bills hanging there," sighs Joe Dixon, the company's vice president of production and technical services, as he stares at a sea of black and gray suits outside the dressing room. "It is a complete waste. They gather dust, and they don't turn fast enough." Brooks Brothers is still debating how quickly to roll out the scanning technology to its 90 or so stores; Dixon says the size and price of the machines are obstacles. (They're getting cheaper and smaller, though; [TC] introduced a $40,000, five- by nine-foot model in May.)

Some apparel companies' customization programs are thriving by ignoring individualized fit entirely to focus on styles and colors. Ralph Lauren, for example, launched a Create Your Own line of polo and oxford shirts in 2003 and 2004, respectively. For knit polo shirts, customers can select from 17 colors and six embroidered polo-player logos, paying just $5 to $10 more than for a noncustomized shirt. The Create Your Own shirts are now the most popular products on Polo.com: The company has sold more than 33,000 this year.

Sneaker maker Vans and bagmaker Timbuk2 have similar programs, as does athletic clothing giant Nike. Its five-year-old program, Nike iD, allows you to design your own pair of running shoes online, choosing among thousands of color combinations and adding your own embroidered words (see box). Every night Nike batches the custom orders and sends them from its headquarters in Beaverton, Ore., to one of 15 plants, depending upon which basic shoe model the customer chose. There, classic lean manufacturing takes place, says Jay Wilkins, general manager of the program: "One worker takes [a pair of] shoes through the process and stays with it until it reaches the next step. There's no downtime."

Nike says it didn't expect the program to be profitable. "We didn't want to lose a ton of money on it, but the original business model for iD was about connecting with the consumer and creating loyalty," says Wilkins. The program, however, has experienced triple-digit growth during the past two years and is now making money (Nike won't say how much). Earlier this year Nike took iD beyond the Internet to seven of its 17 U.S. retail stores. While the company says it still pays a premium to manufacture one-off shoes, margins are about the same as for off-the-shelf sneakers because Nike charges $10 to $20 more per pair. One reason Nike has been so successful, says Pine, is that it makes customers feel in control without ceding its brand identity. (Buyers aren't allowed to eliminate the Nike swoosh, for example.)

M&M's manufacturer Masterfoods USA is following the same model. In August, Masterfoods, whose parent is Mars, launched a customization option for its iconic candies. Customers go online to choose one of 13 colors and add a personal slogan that will appear on one side of the candy shell. But the trademarked lower-case "m" must remain on the other side. An eight-ounce customized bag is no bargain: It costs $9.49, about five times the price of a similar-sized off-the-shelf bag, and you must order four bags at a time. They take up to 15 business days to arrive. So far, customers don't seem to mind. The company won't divulge sales for the customized candies, but a spokesperson says that just a few weeks after the launch Masterfoods had to expand manufacturing operations from one production line to three to meet unexpectedly robust demand.

A challenge for companies that want to get into mass customization is preventing customers from tarnishing their brand by getting a little too creative. Nike blanches when customers try to print "Reebok" and "Swtshop" on its sneakers; its website rejects such requests by screening text through a several-thousand-word "profanity filter," a database that keeps growing as customers get more inventive.

Stamps.com ran into a similar problem. By agreement with the U.S. Postal Service, last August the publicly traded company began a test that allowed consumers to put pictures of their choosing--their pets, their fiancées--on actual U.S. postage stamps. The response was phenomenal: Within seven weeks Stamps.com processed and sold more than two million PhotoStamps at around $1 each for a first-class stamp, vs. 37 cents for the regular kind. But pranksters managed to slip photos of controversial people (such as former Yugoslav President Slobodan Milosevic) through the online system. That's why the Postal Service pulled the plug when the test phase ended in late September, many believe. "We're evaluating a variety of issues and will soon decide whether to allow PhotoStamps to continue," says a spokesperson.

Despite the drawbacks, experts say dozens more industries have much to gain from mastering mass customization--makers of sports equipment, intimate apparel, and automobiles, for example. Carbuyers can choose from basic options such as power windows, chrome wheels, and leather upholstery, but when was the last time you heard someone talking about his new, built-to-order SUV? Automakers have largely ceded customizing to the thriving $29-billion-a-year aftermarket--body shops and suppliers that can, in MTV lingo, pimp your ride. (One exception: BMW Group's Mini Cooper, which says online buyers can build literally millions of different versions of the car. Eighty percent of its customers configure their own vehicles.)

Even companies that shuttered their customization programs say the process gave them valuable insights into what customers want and are willing to pay a premium for. General Mills, for example, says that it used data it gathered during its customization test to make changes consumers liked, such as adding dried fruit to certain cereals. And Levi's now offers many more "fits" for different body shapes than it did a decade ago. "Thinking about mass customization as a goal, even if you don't get there, changes the way you think about what you are trying to offer customers," says author Postrel. And that can have a significant effect on the bottom line.

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