Communicating in the Magic kingdom.

Holding a mug of tea, Marc Porat pads in stocking feet around his in-laws' UN Plaza apartment with a postcard view of the East River. The chairman and CEO of software start-up General Magic apologizes for sleepy hazel eyes and a gravelly voice, citing a late-night family outing at Shakespeare in the Park. But he's never too tired to demonstrate his company's technology on a Sony Magic Link personal intelligent communicator, a miniature Etch-a-Sketch look-alike that weighs about a pound. "Let's look at some flights to San Francisco," he says, tapping the airport control tower icon on the screen, then the keyboard icon at the bottom of the screen. Each time he hits a key while typing in the flight information he wants, the device makes a sound like an electric typewriter. Plug in the phone line, hit the airplane icon, and 30 seconds later, you get a list of flight prices with the cheapest highlighted and a purchase code.

Just like magic. General Magic, that is, a company that popped rabbit-like onto the corporate scene in February with one of the world's hottest IPOs, but lately has been practically invisible, hemorrhaging cash as it battles Microsoft and waits for applications.

The electronic-services market is poised to explode, with Cambridge, MA-based Forrester Research estimating it will account for $4.5 billion in revenue by 1999, up from $240 million last year. Spun off from Apple Computer in 1990 with Porat, 48, at the helm, Sunnyvale, CA-based General Magic has a tough row to hoe as it seeks to set the global software standard in automated, interpersonal communications. As usual, it's as much a battle over marketing as technology. Here, General Magic is going head-to-head with Big Bad Bill Gates, who isn't about to let an upstart take an early lead in the standards race.

"People root for us, because they think Microsoft is a bully, and we try to take advantage of that," says Israeli-born Porat, who grew up in Manchester, England, and Palo Alto, CA, then went on to work at the Aspen Institute in Washington before founding the Private Satellite Network in 1983 and joining Apple five years later. "Right now, we're focusing on bringing more companies on board our alliance, so more manufacturers will manufacture to that platform, and applications developers will write to that platform, and we'll have the global standard."

With only 140 employees - many of whom wear Bermuda shorts and sandals to work and sleep in their offices - General Magic is off to a good start, having already established a formidable alliance of global partners. These include Matsushita, OKI, Apple, Mitsubishi, Sanyo, Sony, Northern Telecom, Toshiba, Philips, and Motorola, which manufacture devices - or vehicles, as Porat calls them - such as personal intelligent communicators (PICs), PCs, and cellular phones. AT&T, NTT, Cable & Wireless, France Telecom, and Fujitsu provide the telephone lines and local and wide area networks that connect the devices to electronic communities such as chat groups, electronic publishers, e-mail, and electronic merchants (see graphic).

Magic Cap is General Magic's operating system that can coordinate Rolodexes, file namecards, and create and send e-mail and fax messages. But it's Magic Cap's sister technology, Telescript, that holds the most possibilities. Telescript is an interactive, automated communications software that creates information-seeking "agents," which move from computer to computer via a two-way, wireless "highway." These agents are programmed to browse the Internet and perform tasks such as collecting stock-price quotes or ordering Tony Bennett concert tickets for users, so they don't have to sit at a PC or PIC for hours on end.

Both Magic Cap and Telescript originally were designed to work on personal communicators - now in the $499 range - manufactured by Sony and Motorola rather than on the more-popular PC. Sluggish sales of these devices, product delays, and a lack of a nationwide wireless network have kept General Magic firmly fixed in the red. After going public in February - soaring from an initial $14 a share to a high of $32, and currently at 16 7/8 - it reported a net loss of $6.5 million in the second quarter. Porat says the company is burning about $3 million a month.

Nonetheless, with analysts estimating that PIC sales will hit about 950,000 in 1998, Porat believes General Magic will show a profit sometime in 1996 - mainly through licensing its technology - especially if PIC prices drop to a more reasonable $300 mark. However, Samuel May, senior analyst at Boston-based Yankee Group, cautions that probably won't happen for another two years, and even then, consumers conceivably could choose to buy cellular phones for $100 instead.

Industry analysts also blame General Magic's problems partly on the slow rollout of AT&T's online network, AT&T PersonaLink, which costs $9.95 a month and is supposed to accommodate intelligent "agents" such as Telescript's to allow users to shop electronically. In some ways, General Magic is caught in a chicken-and-egg dilemma. The company needs subscribers to come online, but they won't do so until more electronic merchants and services are available. And those services won't come on board until there are enough subscribers to make it worthwhile. At the moment, General Magic figures on giving away the software - which also works on PCs - in the hopes of gaining subscribers.

Eventually, users will create their own "Main Streets" on their computers, sending "agents" to their favorite stores to cruise for bargains. To date, six merchants have signed on to the AT&T network, including a nationwide flower-delivery service.

In the meantime, Porat keeps a wary eye on Microsoft, which is rumored to be trying to develop a Telescript of its own. "We simply must set the standard before Microsoft does," says Porat, who balances an idealist's passion with a killer marketing pitch.

Analyst May believes Telescript may be better linked to an Internet "browser" product and may require being marketed accordingly. General Magic recently took the first step in that process, creating separate divisions to handle its two products.

"General Magic certainly is a test of character," says Porat, who professes a preference to discuss philosophy rather than golf, and claims he surrounds himself with people who don't need much managing so he can be a "lazy" executive. "If I found someone else more qualified to run the company, I would take myself out."

What about someone like Bill Gates? "It's possible, but Microsoft has shown no particular interest in taking us over," Porat answers. "We're not positioning ourselves to be acquired by Microsoft, but it does have an appetite. We think Telescript has a happy home next to Novell Netware, Oracle SQL, and Microsoft NT."

Listening, Bill?

PROFILE

MARC PORAT Chairman & Chief Executive GENERAL MAGIC

Born: Nov. 19, 1947, Israel.

Education: Bachelor's, Columbia University; Master's, Ph.D., Communication, Stanford University.

Family: Wife, Sandra; children, Jason, 12, and Liana, 10.

Outside interests: Oil painting, Cezanne-style (portraits and models); yoga; driving his black Mazda RX-7.

Personality: More interested in matters of the soul - religion and philosophy, for example - than in golf; admits to having a hard time chatting.

Favorite expression: "Finding the balance - sweet spot - between passion and focus."

Favorite book: "A Path With Heart," by Jack Kornfield.

Mentor: Sony of America's Mickey Schulhof.