Move over computer. All you may need is a pen.

Livescribe, the Oakland, Calif., digital-pen maker recently started selling its Pulse smartpen with built-in memory that digitally transcribes written words and at the same time records audio.

That means college students that record a professor won’t have to manually transcribe the lecture or taking minimal notes in a long meeting won’t leave you scrambling.

Using dot paper that will eventually be free to download, users can click on any word on the pad and the audio will play back at that time in the recording.  A 1 GB version of the pen, giving users 100 hours of recording, sells for $149, while a 2 GB version goes for $199.

“This could be the smallest, lowest-cost computer fully multi-model we’ve seen,” said Jim Marggraff, chief executive of Livescribe. Marggraff, a former executive of LeapFrog, the Emeryville, Calif., educational-product company and one of the creators of LeapFrog’s popular LeapPad, started Livescribe after being wowed by technology out of Swedish-based Anoto. Anoto is a technology licensor that provides optical pen and paper tracking technology to Livescribe. Livescribe licensed the technology and officially launched last January. The company has raised venture capital funding from VantagePoint Ventures. 

“It’s connecting the paper world to the digital world,” said Marggraff, of the Pulse smartpen.

Livescribe isn’t the first company to go after the market of digitizing paper, and it won’t be the last. So far, however, efforts haven’t been very successful, in large part because paper is the one product that hasn’t really changed nor has it needed many improvements over the years. The ability to shrink memory cards to small sizes is ushering in new class of devices like the Pulse smartpen, and its ability to record audio and match it with text could be what drives adoption, especially for people who can’t read their own notes or aren’t inclined to take a lot of notes during meetings.

“Pulse brings an aspect to the market that is sorely needed: blending of media,” said Robert Enderle, founder of technology market-research company Enderle Group. He said the Pulse smartpen is at the beginning of the market and that there are a lot more advances to come.

The Pulse smartpen stores the text and audio in the pen and, once it’s connected via a USB to a computer, is transcribed into a document in the actual handwriting of the note taker. The handwritten notes appear in black while the voice recordings appear in green. The pen is about the size of a Montblanc pen and the pads sell for $4.95 to $12.95 each. The pen is sold in Target (TGT), Amazon.com (AMZN) and on the company’s Web site. Livescribe plans to launch a version that supports Mac computers toward the end of the year.

While the Pulse smartpen’s most obvious application is for note taking, Livescribe is betting a slew of applications can be developed for the pen. Later in the year, taking a page from Apple (AAPL) with Apple’s iPhone Apps stores, Livescribe will open an Internet-based store where developers can sell or offer for free downloadable applications for the pen.  In the coming months, users will be able to download a translator application that will translate about 50,000 words into Spanish, Mandarin, Arabic and Swedish and a piano application that lets you draw a piano on the notepad and  then press on the keys to play music. 

Marggraff said demand for Pulse smartpen has exceeded expectations and that the developer community has been receptive to the product. At a presentation during Sun Microsystems  (JAVA) Java conference, 400 people in the audience left mid-way through his speech not out of disgust but to line up to buy the pen, which Livescribe was selling at the conference. “People were waiting in a line that kept growing,” he said.