They're beginning to walk, talk, and, yes, think like people. Is the age of the robo sapien just around the corner?

It's 1996. Japan's economy is lurching toward recession. Instead of investing in a new generation of expensive industrial robots, Japan is shipping more production offshore to Southeast Asia and other cheap-labor locales. It's a tough time for Tatsuzo Ishida, Sony Corp.'s (SNE ) ace robotics engineer. He has spent the past 15 years developing steel-collar workers to assemble millions of Walkmen, handycams, and game consoles in Sony's Japanese factories. With Sony joining the exodus, the future of factory robots looks dim.

Being a robot maniac, Ishida refuses to throw in the towel. Instead, he hatches an outrageous plan. Together with comrade-in-arms Yoshihiro Kuroki, he proposes that Sony engineer a whole new species of humanoid entertainment bots, along the lines of C-3PO, the golden chatterbox in Star Wars. The technical challenges are tremendous. Nobody has yet built a biped that can stroll blithely through a house, maneuvering around furniture and dodging people--unaided by a human controller. And if the robotmeisters actually achieve their goal, Sony could face major liability risks. How long before one of the creatures trips and topples onto a toddler, or wanders into the path of a car on its way to the supermarket?

To Ishida's amazement, Sony goes for the idea, despite all the potential snags. The new business development chief, Shingo Tamura, turns out to be as much of a robot nut as Ishida and Kuroki. All three studied humanoids at Waseda University's famed robotics lab in Tokyo. "Anyone else would have dismissed us as lunatics," admits Ishida. "But we shared this dream of building personal robots."

Last November, Ishida's dream took its first bow in public. At a time when the world was going gaga over Aibo, Sony's insanely cute robotic puppy, Ishida and Kuroki put a half-dozen prototype humanoids through their paces in Yokohama at Robodex, a new expo for personal robots. The crowd was spellbound as the pint-size acrobats, just 50 cm tall, jumped, danced, and kicked mini soccer balls. No one minded that the bots were fed cues over a wireless computer network. The acrobots were real. Now the future had a symbol of hope called SDR, or Sony Dream Robot (view a Sony promotional video for SDR).

SDR and other robots at the expo caused a sensation in Japan. Years from now, Robodex may be remembered as a watershed event. While Aibo and its ilk now hog the headlines, scientists and engineers in laboratories across Japan, the U.S., and Europe are struggling to build far more sophisticated bots in the image of humans. The timetable is fuzzy, but so-called robo sapiens could be strolling sidewalks by decade's end. Whenever it happens, the new humanoids promise huge benefits to society--and financial bonanzas to their creators.

SOCIAL SKILLS. Many of the inventors are inspired by the sheer scope of the technical challenges. The complexity of building supercomputers, erecting skyscrapers, or even designing whole cities pales beside the task of imbuing machines with humanlike motor skills, synthetic sight, smell, hearing, and touch, plus something that approximates human intelligence. But the robo-maniacs feel driven to make it happen. "We have an image of robots as partners, and a machine similar to humans can evoke shared feelings," says Masato Hirose, 45, a Honda Motor Corp. designer who has built a line of stair-climbing robots. Atsuo Takanishi, 44, a professor of robotics at Waseda, says visions of helper bots took root in his childhood, as he "grew up watching cartoons of Atom Boy," a sort of robotic Mighty Mouse. At the Massachusetts Institute of Technology Media Lab, researcher Cynthia Breazeal sounds the same chords. For robots to be meaningful companions, "they must be socially savvy," says the 33-year-old researcher. So her creation, named Kismet, is learning to recognize human emotions--and has a nimble face to express its own moods. "If the robot wasn't anthropomorphic, it wouldn't work," she says.

Beyond psychology, humans could make good use of mechanical devices that walk, talk, and think like us but vastly exceed our capabilities in memory, computational skills, and raw physical strength. Heavy industry wants such creatures for labor in hazardous environments. The military wants them to shoulder a soldier's burden on the battlefield. The Japanese government wants them to help care for Japan's swelling ranks of elderly people. And Sony figures the best place to launch this revolution is entertainment. Since dancing and singing robots like SDR don't do anything essential, says Kuroki, "it's O.K. if they make a mistake sometimes." That would be only human, after all.

None of Japan's humanoids can brew coffee or do the laundry--yet. But the next-generation technologies that robo sapiens will need are being refined today--often in the shapes of other animals. Chances seem good that Aibo and other robo pets will evolve into Japan's next great export wave. And following in the toys' wake could be all manner of household robots, from steel guard dogs to autonomous vacuum cleaners and kitchen "Cuisinbots." Already in Japan, toylike robots are reminding senior citizens to take medicine and keep appointments. And future plans call for bundling more advanced computers and mechanisms into roving maids and butlers. "Robots are just on the verge of becoming intelligent machines," maintains Honda's Hirose.

Humanlike robots were stirring imaginations long before the word "robot" entered the English language in R.U.R. (Rossum's Universal Robots), a 1921 play by Czech writer Karel Capek. In ancient Greece, Aristotle wished for mechanical slaves that would obey people. In the Middle Ages, people marveled at mechanical crowing roosters and clockwork automatons. But those mechanisms were anchored down. For real versatility, robots must be mobile--and robot companions must walk on two legs. That's a major engineering challenge.

Bipedal movement is essentially a continuous, controlled fall that's avoided only by precisely timing each step. People do it without thinking, so it seems simple. But the computational horsepower needed to prevent a biped bot from falling on its face is considerable. Early mobile robots had to drag a cable connecting them to a big computer.

RECHARGING. Now that the underpinnings for smart robots are falling into place, turning Atom Boy into superbot has become something of a national obsession in Japan. Researchers in dozens of corporate and academic labs are racing to develop working models that within a few years may become our cohabitants and co-workers. The leaders--companies such as Matsushita Electric Industrial (MC ), NEC (NIPNY ), Sony, and Omron (OMTEY )--are investing tens of millions of dollars annually in the development of personal robots. Toyota (TM ) now wants to join this clique. And Honda (HMC ) has spent roughly $100 million since work on its first experimental unit, EO, started in 1986.

After dropping behind in information technology, Japan needs a new industry to recharge economic growth. It's one reason why the Ministry of Economy, Trade & Industry (METI, formerly MITI) is backing research in the field. In 1998, METI coughed up $50 million in seed money to nurture development of a humanoid by 2003. Japan's leaders figure home-care robots for the elderly will soon be a social necessity: By 2005, 25% of Japan's population will be over age 65.

Personal robots won't even approach their full potential in this decade, but robot makers have already fielded many commercial previews. Although sometimes clumsy and unpredictable, service robots are functioning as guards in warehouses, delivering hospital food trays, and carrying documents from one office to another. The Japan Robot Assn. (Jara) estimates that by 2002, some 11,000 service robots will be deployed, 65% of them in hospitals and nursing homes. By 2005, give or take a year, Jara projects that health-care robots will be a $250 million market, then hit $1 billion by 2010--approaching 10% of the total market that year. As for personal bots, a panel of industry and academic experts last year predicted they will be as common as PCs and cell phones within 10 or 15 years.

One of the first robo sapiens on the market will be Honda's Asimo, a 1.2-meter-tall android that resembles a child astronaut. It strides confidently, climbs stairs, and negotiates corners. It can turn out the lights, and to show off, walk a figure eight or compete with Sony's SDR bots on the dance floor. The hitch is that Asimo currently is blind, deaf, and dumb--and must be remotely controlled. Over the next few months, says Hirose, it will be equipped with programs and artificial senses that will render it autonomous. This fall, for an undisclosed fee, Honda will start renting Asimo to companies and museums for use as a visitor's guide.

PERSONABLE. Another robot about to hatch is Pino, an infantlike android built by Hiroaki Kitano, an artificial-intelligence (AI) expert who heads his own government-funded research group, Kitano Symbiotic Systems Project, in Tokyo. Pino is outfitted with neural-network circuits that will one day mimic the human brain, thus enabling it to learn to walk and ape humans.

Sony has already proved that mechanical companions are a promising market. Now, sales of entertainment robots, it believes, are primed to explode. These include electronic critters like the $1,500 Aibo, which can learn tricks and respond to voice commands. The latest model looks like a lion cub. Over the next five years, an expanding menagerie of mechanical pets from Sony and others could whet consumer demand. And then, around mid-decade, Sony's acrobots should hit the market--probably at prices comparable to a high-end PC. Come the 2010s, predicts Toshi T. Doi, head of Sony's Digital Creatures Lab, each of Japan's 46 million households will have two or three robots, including a humanoid.

Researchers everywhere are equally fascinated by the potential of home robots and cyber-companions. Ironically, some European and North American labs are counting on biological approaches to help produce mechanical beings--a tack called evolutionary robotics. The basic idea is to raise a machine like a child, letting it learn from its own experiences and sensory impressions, rather than feeding it canned software written by humans. Hothouses of this research include the University of Sussex in Britain and Switzerland's University of Lausanne--and MIT and Michigan State University. At Brandeis University, the Golem Project has even produced robots that design and build other robots.

MIT's Cog and Kismet are probably the most famous of the self-educated bots. Cog is the brainchild of Rodney A. Brooks, head of MIT's AI Lab. This humanoid torso has been learning to interact with its surroundings and with people since its "birth" in 1993. Cog has mentally progressed to the crawling-infant stage--although its legs have yet to be attached. Cog's face is less expressive than Kismet's, but even so, it can be engaging. Its camera eyes track moving people, and it establishes eye contact with people facing it. Almost invariably, says Brooks, visitors and researchers quickly treat Cog as a person, despite its skinless metal skeleton.

No matter how personable Cog may seem, fulfilling Brooks's dream of a robot with human-level intelligence remains on the distant horizon. Still, many experts believe truly smart robots are inevitable, given the ever-growing power of computer chips. Computing power increases a thousandfold every 15 years, notes Sony's Doi, so it's only a matter of time before even little metal pets like Aibo become intelligent. "Robots will be able to have normal conversations and even gossip with humans," he predicts.

At the other end of the "evo-bot" scale are the creeping creations of Mark W. Tilden, a researcher at Los Alamos National Laboratory. Most of his buglike robots don't even have a microprocessor brain, just some sensors. They function on the basis of primitive survival instincts. Yet some fairly complex behaviors can evolve. For example, a solar-powered mechanical insect has one purpose: to soak up energy from the sun's rays. But give it legs, and it gradually learns to walk so it can follow the sun on its path across the sky. Give it suction-cup feet with attached brushes, and it will keep a window clean--following the rising sun up the window, scrubbing as it tries to crawl closer to the light.

Tilden has harnessed similar mindless creatures to clip grass, clean up dust, and draw draperies. A decade ago, he founded a movement called BEAM (for biology, electronics, aesthetics, and mechanics) to popularize simple robots. There's now a worldwide army of BEAM aficionados, including schoolkids. They stage contests and swap tales of how many robots parts were scavenged from trash cans and junkyards. "You can build a BEAM robot for next to nothing, and you don't have to write an elaborate program," says Tilden. "But more important, it shows you the power of biology as a model."

FRUSTRATION. There are a lots of BEAM proponents in Europe--and many researchers there also share Japan's view of the near-term need for personal robots. For example, Germany's Fraunhofer Institute has developed Care-O-Bot, which looks a bit like R2D2, to help elderly and infirm people maintain independent lifestyles. It can guide and support people who are unsteady on their feet, run errands around the house, and operate home electronics.

In the U.S., though, getting the funds to turn robot research into a going business has been a problem, laments Joseph F. Engelberger. Widely hailed as the father of the industrial robot, Engelberger co-founded Unimation Inc. 40 years ago and created the factory-robot industry from scratch. After cashing out in 1983, he founded HelpMate Robotics Inc. (HELP ) to build service robots. His flagship: wheeled cabinets that scurry around hospitals, distributing medicines and patient records. But Engelberger always had his eyes on domestic robots because the market potential is clearly far bigger.

In 1997, HelpMate built a two-armed, wheeled prototype for NASA to evaluate as a helpmate in space. Engelberger intended to adapt it for home use, since its touch-sensitive hands and two arms could make beds and prepare meals for seniors. But it was not to be. He couldn't raise the $5 million he needed to bring it to market, and financial problems forced him to sell the company in 1999. This lack of interest in robotics puzzles the Japanese. Many reckon it's because Hollywood often depicts robots as monsters, whereas the Japanese view them as helpers.

As a result, Japan has amassed a formidable stockpile of robotics knowhow. It has long been the world's largest manufacturer of industrial robots, producing twice as many as the rest of the world combined. Last year, robot shipments, including exports, came to $5.7 billion. Export sales alone--$3 billion--outclassed total production in every other country.

Furthermore, Japan has an army of young, savvy robotics experts. Close to half of its 4,500 registered robot engineers are focused on AI or related disciplines aimed at enhancing robot intelligence. "The level of AI research in Japan and the U.S. is now the same," asserts Takanori Shibata, 34, who studied under Brooks at MIT. Shibata is a senior scientist with the governmental Mechanical Engineering Lab in Tsukuba, north of Tokyo. His creations are plumbing interactions between people and robots. Paro the baby seal responds to human touch and is a big hit with children at a university hospital ward, where the cuddly crawler is being tested as a therapy tool. And Shibata's cat robot will be marketed this year as a companion for the elderly by Omron Corp.

SONG AND DANCE. Shoestring budgets at Waseda University and other academic labs nourished Japan's early robot dreams. Now, well-heeled Japanese corporations are transforming research into commercial products. For example, Sony cut a deal with Waseda, in effect purchasing its expertise and hiring Takanishi as an adviser to its SDR program.

Backed by ample resources, corporate engineers are now busily refining sensors and rewriting algorithms to create more sophisticated machines. Sony's Ishida and Kuroki developed a new kind of compact, lightweight motor for their robot's 24 joints. The motors are one reason why SDR can prance along at 15 meters a minute, keep its balance on a seesaw, do the twist, and even stand up after falling down.

Honda engineer Hirose turned to biology for help with Asimo. After his son was born in 1988, he studied his progress from a crawler to a toddler. "I recorded a lot of videotapes of my son's first years, but they show only his legs," he quips. The tapes served an important purpose, though. Hirose realized that nerves in the sole of the human foot are vital for walking. So he attached sensors to the robot's feet to help Asimo locate the edge of stair steps and maintain its center of gravity on sloping ground.

As margins dwindle on consumer electronics and industrial equipment, Japan's manufacturers are desperately seeking new genres of products. Smart robots that combine a virtuoso entertainer, flawless social secretary, compliant maid-butler, patient listener, and multimedia communications system could be just the ticket. Such companions could record the passing years and regale people with intricately detailed multimedia stories of family triumphs and personal exploits. Anything that owners forget, their cyber-companions would remember.

The chief blemish on Japan's bullish outlook is that buyers might expect too much from the first crop of bots. Early androids may not have enough finesse to poke around inside packed refrigerators, and people might be wise not to trust them to iron shirts. "Just because robots can sing and dance doesn't mean they'll soon do everything," cautions Shigeo Hirose, a robotics professor at Tokyo Institute of Technology. Aibo the robo pet has proved they don't have to. Robots can ease their way into our lives, step by mechanical step.

By Irene M. Kunii in Tokyo and Otis Port in New York

    Before it's here, it's on the Bloomberg Terminal.