(FORTUNE Magazine) – Just how small can a computer get? How about small enough to wear?

A drumbeat is developing in the computer industry around the idea of wearable computers. The beat started at least 20 years ago with a visionary named Alan Kay. Kay, who worked at Xerox, Atari, and Apple before landing at Disney, wasn't talking about the idea engineers have of a wearable computer, which is to break a 15-pound desktop computer into components that would hang from a belt. Instead Kay was talking about how computers themselves might become small enough that you could actually weave them into pieces of clothing. At that size, he figured, computers would stop being bulky objects that were difficult to control and would instead become useful parts of everyday life.

What's happened since is that computers have indeed diminished in size. It is now possible to envision real products that correspond to Kay's original concept. Right now the idea is somewhere between vision and reality, in an in-between state I'll call the bull zone. Wearable computers offer an engaging vision, but first the industry has to work through the bull zone.

The volume of the drumbeat has been turned up recently by Philippe Kahn, who recently helped introduce a product called the Rolodex Rex PC Companion. Rex was conceived by Kahn, the CEO of Starfish Software, which also created the software for the device; it was designed and is being marketed by Franklin Electronic Publishers, which licensed the Rolodex Electronics brand name; and it is being manufactured by Citizen Watch Co.

Rex is as small as a credit card and only about three times as thick. But Rex is a computer, with a microprocessor and memory and software and a display. All it lacks, compared with a regular notebook or desktop computer, is a keyboard and a hard disk. (Of course it also lacks a full screen, since its 28 by 1a-inch screen can display but 25% of what shows up on the monitor of a standard PC.)

Rex is designed to store and display your personal information: phone numbers, schedule, notes, and so forth. The fact that it is so small is a key factor in executing the task it was designed for. You really want to have this kind of information--the phone number you need right now or the location of your meeting 20 minutes from now--with you physically, not back in the hotel room, or in the car, or in your briefcase somewhere. Rex is even easier to carry around than paper calendars and address books.

This is where that wearable vision thing comes in. Philippe Kahn likes to call his very small Rex wearable. Indeed, Kahn has a vision of a bunch of small devices like Rex, all connected into a kind of personal information network--without much work on your part, the devices would synchronize your personal data seamlessly between themselves. You might have a wristwatch that reminds you of appointments. You might have a tiny cell phone that knows the number of the person you want to call. You might have a credit card-sized device that looks up your checking account balance while you're at Bloomingdale's trying to decide if you have the money to buy a new jacket. You might have a pager that receives reminders from your desktop PC about when to pay the mortgage. Kahn calls these things CIDs, or connected information devices.

Philippe Kahn has had a lot of visions. Kahn founded Borland International and seemed briefly to have figured out how to compete directly with Microsoft in the software business. "Briefly" is the key word in that last sentence. Unfortunately for Kahn, Microsoft figured the game out and crushed Borland.

After he left Borland to start Starfish Software to create software for portable devices, Kahn withdrew from the public eye and put his head down to build a new business. But he can't help himself, really, and he's stepping out of the shadows again, this time beating on this new drum of wearable, connected information devices, particularly now that he and Franklin have this hot new product to sell.

Kahn's latest vision, engaging as it is, is caught in the bull zone.

This thing of being very small, you see, cuts both ways. Rex is so small that it fits into the PC Card connector in a notebook computer. This is very cool because all you do is insert Rex into the connector and the device automatically updates itself with your latest schedule and new contact information. (Rex comes with an adapter for desktop computers.)

But this very thing points clearly to the device's biggest flaw: Rex is so small that you can't enter any information into it directly. That means you have to collect information on little scraps of paper or business cards until you get back to your computer, type the data in, throw out the paper, and synchronize. In a digital world, that's bull.

Worse, Kahn decided that Starfish could synchronize data better than anyone else, so the company designed its own TrueSync software. As far I am concerned, that was an unfortunate decision, typical of Silicon Valley companies more concerned with doing things their way than using what exists to make customers' lives easier. Instead of writing its own code, Starfish could have worked with the company that got there first, with software that already does a great job of synchronization: 3Com's Palm Computing, which developed the PalmPilot and its HotSync software. Instead, the only PC contact and schedule manager that Rex works with seamlessly is Starfish's own Sidekick program. To get data from Microsoft Outlook or Lotus Notes into Rex, you've got to first import the information into Sidekick. Palm Pilot's HotSynch, however, works well with all of them. So that's bull, part two.

Kahn's unfortunate decision makes it hard for the very people most motivated to use Rex to actually adopt it. Take me. I think Rex is really cool, but I use Microsoft Outlook for my calendar and contacts, and I'm not going to stop using Outlook just to use Rex. Particularly when my Pilot already works with Outlook perfectly well.

In high tech, a product that doesn't start selling right away is frequently judged a failure and ignored. I hope that doesn't happen to Rex. As I said, Kahn's vision is engaging. But his decisions so far aren't helping that vision escape the bull zone.

In the long run, of course, it's not Philippe who decides whether wearable computers become a reality. Several other big technological developments must still come together. Wearable devices must contain wireless technology so they can communicate with one another as well as with some kind of home base. That home base itself is crucial--home or business computers need to be designed to act as remote servers that can synchronize and update all your wearable, connected devices. And the technology behind the big World Wide Web needs to be developed further so that your home base can work with information owned by others--banks, insurance companies, stores, media companies, and so on.

This work will take years to reach devices cheap enough to create a mass market. Rex helps us see how wearable computers might develop. But as I said, for now the vision's caught in the bull zone.

REPORTER ASSOCIATE Henry Goldblatt

STEWART ALSOP is a partner with New Enterprise Associates, a venture capital firm. Except as noted, neither he nor his partnership have a financial interest in the companies mentioned. Alsop may be reached at stewart_alsop@fortunemail.com