(FORTUNE Magazine) – IMAGINE A NEW FORM of information storage that would hold encyclopedic amounts of data but could slip into a personal computer or workstation as easily as a floppy disk does -- and could be erased and written on again several million times without the least sign of wear. Well, it's finally here. Over the past year Japanese electronics giants and American high-tech firms have introduced the first erasable optical disks, along with the disk drives that put information on them and get it off again. Unlike the magnetic floppy disks, hard disks, and tape cartridges that store data in most of today's computers, optical disks use laser light to record and read information, just as do the compact disc recordings that are supplanting LPs. The new technology promises to give computer users what they have been clamoring for: lots of reusable memory in a form that can be removed from the machine at the end of the workday for use at home or while traveling. Many computer users, especially those in security-conscious government agencies, don't like leaving their data unprotected when they go home. Because they cannot remove high-capacity hard disks, the most popular storage devices for PCs, some users go so far as to put their computers under lock and key overnight. One famous trendsetter, Steve Jobs, the co-founder of Apple Computer, has included a Canon optical disk drive as the primary storage device for the workstation from his new company, Next. IBM, Hewlett-Packard, and other computer makers are carefully eyeing the market but have yet to plunge in, partly because the optical disk drives available thus far are slower and more expensive than the best magnetic storage devices. Lingering differences over compatibility could also hold back the young technology. So while optical drives were the hottest new products at the industry's fall trade shows, it's not yet clear how much of a dent they will make in the $23-billion-a-year worldwide disk drive market. The full name for the new technology is magneto-optical storage: The disk drive combines a laser and a magnetic coil, which work in tandem (see illustration). Because the laser can read a bit of data only 40-millionths of an inch across, an optical disk the size of a CD can hold vast quantities of information -- the entire text of the Encyclopaedia Britannica, for example, or every telephone listing in New York and New England. But until recently the optical disks suffered from a serious drawback: You could record information on them but you couldn't erase it. The breakthrough came in 1987 when teams of engineers at 3M and other diskmakers discovered almost simultaneously how to make an ultrathin magnetic layer that could be written on and erased millions of times without deteriorating. The introduction of erasable optical disk products followed like a tidal wave, much of it originating in the Orient. Many of Japan's largest electronics companies, including Sony, Canon, Ricoh, Olympus, and Sharp, have come forward with optical disks or optical disk drives or both. THE PRINCIPAL U.S. entrant so far is Maxtor Corp. of San Jose, California, which sold $300 million worth of conventional hard disk drives last year. Maxtor has chosen to take on the foreign goliaths with an optical drive that can put a full gigabyte of data -- one billion bytes, the equivalent of 500,000 typewritten pages or 2,800 floppy disks -- on a single optical disk only 5 1/4 inches in diameter, the same size as most floppies. That's more than half again as much as the capacity of the Japanese drives. Maxtor engineers named their product the Tahiti, figuring they could probably afford to vacation there if the disk drive succeeds. Maxtor and Verbatim, an Eastman Kodak subsidiary headquartered in Charlotte, North Carolina, have also introduced systems that record data on an even smaller 3 1/2-inch optical disk. Most of the players in this game, including Jobs, are betting that erasable optical disks will eventually become the storage medium of choice for everything from desktop workstations to data libraries that networks of users have access to. ''Once every 20 years we see a transition to a new storage technology,'' says W. Michael Deese, vice president for optical systems at the U.S. subsidiary of Sony; the parent company developed the audio CD jointly with Philips NV of the Netherlands. Deese adds: ''The market is now timed exactly right for optical.'' The earliest computers stored their data on bulky reels of magnetic tape. Later machines used magnetic disks that provided much faster access to information. Engineers at IBM passed a milestone in 1973 when they developed a system that could store at least 30 million bytes of information on a single . magnetic disk. Because of its capacity, the system was called the Winchester hard disk drive, supposedly after the .30-caliber hunting rifle. The hard disks in most Winchester drives are erasable but not removable. The beauty of the erasable optical disk is that it combines the high storage capacity of a Winchester disk with the ease of removal of a floppy. REMOVABILITY will be the most important tool for the sale of the optical product in its early stages,'' predicts George Scalise, CEO of Maxtor. ''The typical executive has up to 60 megabytes -- about 165 floppy disks' worth -- of financial data or sales plans or other information in his or her computer files,'' says Donald Strickland, vice president of Verbatim. ''If you can carry that information with you when you travel, then you can transfer your computerized office to anywhere in the world.'' The other great advantage of optical disks is reliability. Perhaps the most dreaded experience in using a PC is a ''head crash.'' That's what happens when the magnetic reading device, or head, of a disk drive collides with the spinning disk and sends invaluable data into oblivion. Head crashes are not uncommon with Winchester drives because the magnetic head is just 15- millionths of an inch above the disk. ''With a high-capacity drive, if you lose 50 megabytes of information, that's 25,000 pages down the drain,'' says computer analyst Aharon Orlansky. There's no chance of a head crash in an optical disk system. The laser is a full one-sixteenth of an inch above the disk, which in turn is coated with a protective layer of plastic or chemically strengthened glass. The first generation of optical disk drives does have limitations, though. The most advanced Winchester hard disk drive systems can hold almost as much data as optical drives and can store and retrieve those data three to ten times faster. Also, the great majority of Winchester drives cost less than $1,000, while the erasable optical drives range from $1,000 to $6,000. Makers of the optical drives are confident that performance will improve and prices will fall with each new generation of products. But Winchester disk drives continue to become faster and cheaper, usually doubling their performance every two to three years. MANY ANALYSTS see the market splitting right down the middle, with optical systems becoming the predominant device for long-term document storage, and magnetic systems retaining control over the fast ''scratch pad'' uses in workstations and PCs. ''It's a horse race, and I don't think the optical horse will catch up to the magnetic horse until the middle or late 1990s,'' says Bob Katzive, vice president of Disk/Trend, a market research firm in Mountain View, California. ''By then it may turn out that the horses are running in different races.'' For this reason, most forecasts for the growth of the optical storage market are on the conservative side. Katzive estimates that sales of erasable optical disk drives will increase from virtually nothing today to $900 million by 1991, with most of the drives going into document storage systems rather than workstations or PCs. Users who need to update their data constantly -- airlines, banks, and insurance companies, for example -- will probably want to stick with the faster magnetic systems for the time being. The first widespread applications of the erasable optical disk are likely to be in market niches where maximum speed is not critical but high storage capacity and removability are. For example, Autometric, an engineering services company in Alexandria, Virginia, has started using an erasable optical disk system to store highly complex Landsat satellite photographs of the earth's surface. Each requires 280 megabytes to cover 13,225 square miles. Says senior scientist William J. Cox: ''We've never been able to put the whole picture in one place before.'' Currently, optical disk drives are being sold by companies such as Advanced Graphic Applications of New York City, which mix and match disk drives and disks from various manufacturers and provide the software to make them all work together. For optical disk systems to become the truly dominant storage technology, however, they will have to be incorporated into the workstations and PCs offered by major computer makers. Says Deese: ''I wouldn't be surprised to see IBM enter the market. It has made its interest known.'' Fans of the erasable optical disk point out, too, that even if the disks don't replace magnetic storage systems on most computers, there's lots of room for the new technology to thrive anyway. Edward Rothchild, head of a San Francisco consulting firm for optical disk companies, estimates that only 2% of all information is stored on magnetic media, while 3% is stored on microfilm and 95% on paper. ''The dominant form of information storage today is file cabinets,'' Rothchild says. ''Paper is the real target for replacement by optical storage.'' Optical disks last longer than magnetic tapes, which must be rerecorded every two or three years to preserve their data intact. And retrieval of information is considerably faster than is possible with microfilm or microfiche. 3M, a major supplier of recording media, was quick to recognize the opportunity and became an early leader in the race to manufacture low-cost erasable optical disks, which currently sell for $150 to $250 apiece. (A floppy disk costs about $1.50.) The Minnesota-based giant faces tough competition from Sony, the Maxell subsidiary of Hitachi, and a joint venture between Philips and Du Pont that is manufacturing disks for the Maxtor drive. ''They will become a commodity product eventually,'' says Roger Hilde, manager for erasable media at 3M. BEFORE THAT can happen, however, all the competitors must agree on standards, so that a user can slip any maker's disk into any other maker's drive. In the rush to bring optical products to market, several companies developed systems before standards had been set for the technology. The Canon optical disk system used by Next, for example, is not compatible with the others. It's barely possible that all these companies have missed the boat. Engineers at IBM, Tandy, and Matsushita are studying other optical recording technologies -- phase change and dye polymer -- that could eventually make the magneto-optical systems obsolete. But there wouldn't be so many companies introducing erasable optical products right now if they didn't sniff the sweet scent of impending profits. ''It will be a gradual growth, but by the year 2000, optical systems will take over,'' declares John Kondo, technical and marketing director for Olympus. ''The market is wide open.''