Newspapers are driven by technology, from news gathering to typesetting and printing, yet the traditional, offline version appears to defy the digital age. At root, physical  newspapers are, as they have always been, ink on lightweight paper.

But the day may finally be dawning when even they go digital. After years of development, a new technology - known variously as "e-paper" or "digital paper" containing "electronic ink" (e-ink) - is set to change all that.

Last week, Philips, the Dutch electronics company, announced the world's first commercial application of an e-paper display module, which it is supplying to Sony for use in a new "e-book" device due to go on sale in Japan late next month. With a resolution of 170 pixels per inch, the displays will be comparable to the most widely read material on the planet - newsprint. Batteries, which are required only when new pages are received, can be small and last for months.

It is the most significant move yet towards the commercialisation of these technologies. Peter Kurstjens, business development manager for the commercialisation of e-ink displays at Philips, says displays will go into mass production very shortly. Philips will supply OEMs (original equipment manufacturers) and is intending to supply major consumer electronics and computer manufacturers, as well as Sony.

The announcement last week breathes new life into a debate that his been simmering for years: is a genuine revolution in the offing, newspaper executives and readers want to know, or is e-paper just another example of gadgetry promising to change the world but failing to deliver?

There seems little doubt that e-paper has the potential to be an important development, widely adopted by newspaper publishers. It combines many of the qualities of printed paper with the tremendous advantages of electronic media - the ability to deliver new editions instantly and without the need physically to print copies and transport them over great distances to thousands of retail outlets and millions of breakfast tables - a daily miracle in logistics.

Instead, the content of tomorrow's newspaper could be received electronically and the image on the page formed by instructing thousands of tiny electrically charged ink capsules buried within the thin, plasticised, paper-like sheet to shift so that each point on the page appears light or dark faithfully representing the whole newspaper page. The paper will effectively be printed in your hands.

Like paper, e-paper is lightweight and portable, and easy to read because it can be large format with high-resolution text and good contrast between the text and its background. It can be read in natural reflected light rather than back-lit like current electronic displays. Once the image of the page is formed, it stays in place. So it won't need to be switched on to read, which explains the longevity of the batteries.

The technology is also becoming more viable for readers. Earlier attempts made no serious impact on printed newspapers because they were not sufficiently like paper and lacked paper's considerable qualities. Few people would carry a laptop computer simply to read the newspaper; the screens on PDAs (personal digital assistants) and mobile phones are too small for reading an entire newspaper; and E-books haven't taken off because they are heavy. All these devices have back-lit LCD screens that are hard to read for any length of time.

E-paper, by contrast, will be very light and much akin to reading print. When a version arrives on the market that can be rolled up into a tube when not in use, it will be far more practical for carrying around than any other device to date.

A further advantage for e-paper is the roll-call of big names, apart from Philips, behind the various e-paper and e-ink technologies. The trail blazers in the development of e-paper were Xerox and Massachusetts Institute of Technology's Media Lab. Xerox developed the concept it called Gyricon over 20 years ago at its Palo Alto Research Center (Parc) in California and left the research on the shelf until competition arrived in the late 1990s when MIT's solution arrived. A company called E Ink was set up to commercialise MIT's prototype. E Ink has teamed up with Philips since 2001, and its technology is being used in the displays being supplied to Sony.

Earlier this year, Philips announced a breakthrough in rollable prototypes of the displays by replacing the glass "backplane" with a plastic one and also employing state-of-the-art plastic electronics. Philips has set up a unit called Polymer Vision to prove the feasibility of volume production. Mr Kurstjens sets expectations realistically here, stating that the commercialisation of rollable e-paper screens is still several years away.

IBM and SiPix in the US, Fujitsu in Japan, Siemens in Germany and NTera in Ireland are all working on rival technologies. Harald Ritter, an expert in the field from Ifra, the international newspaper and media publishing organisation, says all are working with the same goal, based on the concept of fluid crystals.

So e-paper has the potential to make its mark. The more thorny question is whether it will be so successful that it will kill off printed newspapers altogether. This seems doubtful because paper still has some aces up its sleeve. But if e-paper takes off it may cut into the printed circulation sufficiently to change the dynamics of the newspaper industry.

What keeps paper unique, even from e-paper, is that printed newspapers can be bought on a whim and discarded with equal abandon. Any electronic contender has the inherent weakness that it requires a device that is bound to cost money. The one-off purchase may be fine, but it means that people will have to remember to take the device out with them, will not be able to buy one just for something to read when their train is delayed, and cannot throw it away or give it to a stranger when they are done with it. So reading on the move has to be planned and entails carrying the device around all day.

There may be room for a number of technologies to serve different needs - rollable, large-format, low-power, highly readable, paper-like screens for newspapers; more responsive screens that can remain rigid for PDAs, mobile phones and other consumer electronics products. Video applications are not out of the question but power requirements will be much greater.

On the other hand, updateable shop signage, and public display boards can be rigid and, as with newspapers, power should be needed only to change the image. In place of laptop computers, we may expect to see tiny portable computers for computing on the move with detachable screens that can be rolled up and yet change fast enough to show moving pictures ideally in colour.

All these challenges are being pursued and, given the pace of development, even the most ambitious solutions may not be many years away.

An important first step was taken last year when Ifra ran trials in Scandinavia involving Philips and 14 major Swedish newspapers including Aftonbladet and Göteborgs-Posten. The aim was to see how newspaper content would look when mocked up on a Philips prototype device.

Stig Nordqvist, who led the E-reader project, is very upbeat. "Within 15 years e-paper will change everything. And this will be to the benefit of newspapers", he says, adding: "It will be revolutionary but I don't see the point in discussing if and when it will replace print. We need to prepare for, rather than to predict, the future."

The futuristic prospect may be hastened by "DigiNews", a two-year pan-European project involving leading European newspapers and media organisations including, subject to decisions to support by the participating countries under the Eureka scheme, Le Monde in Paris, the Belgian newspaper group Concentra, the BBC in London, and the aforementioned Swedish newspapers.

Alain Bouffioux, from Philips, the lead industrial partner, who directs the project, says its objective will be "to define, architect and demonstrate a complete solution" for the digital newspaper from publisher to reader on a global scale.

Yann Chapellon, head of Le Monde Interactif, says his focus in the project will be on practical issues of how newspapers can package and send their content to e-paper readers, and on the ergonomic and usability issues facing the reader. Mr Bouffioux foresees that "the DigiNews project may be the origin of a new killer application that replicates the success story of GSM: [this will be] the digital newspaper."

If e-paper takes off as much as these experts predict, there will be huge ramifications for how newspaper production is organised. New investment in print plants, which is often recouped over 20 to 30 years, will need to take into consideration the potential for e-paper to displace print. This may hasten the industry's gradual movement towards new models of more distributed production and distribution, so reducing transportation costs and improving the timeliness of editions for readers.

Publishers will also need to consider how e-paper, like all electronically transmitted media, opens up their market to competition. Printing plant and distribution logistics were always a barrier to entry. With e-paper, as with the internet, new would-be publishers only need to create and transmit an electronic file to reach readers who would also find it easy to switch publications. If large numbers of readers adopted e-paper, newspaper publishers would be even more reliant on their editorial quality, brand and reader loyalty than they are now.

E-paper offers an extraordinary convergence between traditional print and new media. Yet newspapers still retain their advantages over e-paper. You can't use e-paper to line the canary's cage or wrap your fish and chips in it.

Julian Perkin is a technology consultant and freelance journalist. He was previously responsible for technology strategy at the Financial Times.