Visitors to the Scottish Executive's junior website are becoming familiar with Seonaid (Shona to Sassenachs), a virtual character loosely based on a combination of Konnie Huq from Blue Peter, the presenter Melanie Sykes and newscaster Kirsty Wark. She delivers news and answers questions about Scotland and its government in a clipped, slightly robotic voice with just the hint of an Islands burr.

Seonaid is the creation of the Glasgow-based Digital Animation Group, one of the world's leading designers of avatars, three-dimensional screen representations of people real and imaginary. Its best known ambassador is Ananova, the green-rinsed virtual newsreader who has been fronting the eponymous online news service, now an Orange subsidiary, for the past two years. Other DAG regulars include TMmy "the world's first virtual pop star" and Head, a television host whose Rabelaisian views and opinions make up for his lack of body.

Visit DAG's new central Glasgow headquarters in the Lighthouse building designed by John Rennie Mackintosh and you come face to digital face with the company's latest initiative - the virtual receptionist. There is also a human receptionist, but pride of place is given over to a touch screen inhabited by another of the company's digital puppets. DAG calls this a "Virtual Intelligent Agent (VIA)", the first of a range of avatars designed to carry out office chores.

The receptionist VIA greets visitors and locates the person they have come to see by telephone or e-mail. It is capable of checking and booking rooms for meetings, paging and sending messages to mobile phones.

Mike Hambly, the group's chief executive, says that Seonaid - the cutting edge of avatar technology - and the virtual receptionist are just the beginning. He looks forward to hearing, seeing, speaking avatars, possibly realised as holographic 3D images, taking their place as assistants in business meetings.

Rhetorical's voice synthesis system could provide natural-sounding speech for such avatars and IndigoVision's technology could provide sight for virtual eyes. So, the building blocks would seem to be in place for Scotland to become a centre of excellence for virtual human beings.

Behind the frivolity of TMmy and Head are serious attempts to understand ways humans can work with computer systems more effectively. It may be that dealing with a life-like representation of a human being could make for a more natural interaction with the most complex machines humans have invented.

DAG uses artificial intelligence, linguistic and psychological techniques to imbue its avatars not only with intelligence but the semblance of emotion. The key is a software program or "engine" which controls the movements and behaviour of the avatar in real time. The closer DAG comes to making its avatars life-like, the greater the chance of success, Hambly believes: "If the face is not convincing as a human face, people will only use it for a short time."

The company was formed in 1990 by Mike Antliff, and found early success in the games and movie animation business. It overstretched itself working on special effects for a King Kong movie, however, and came close to bankruptcy.

Hambly, formerly a computer and electronics industry executive, took over in 1999. He remembers with affectionate exasperation: "I found a wall of energy and zero commercial sense. The designers would spend weeks perfecting the detail of a character's nose."

Restructuring and recapitalisation that year saw the company raise about £11.5m and establish a two-pronged business strategy. Today, one strand creates animation for films, advertising and e-business. The other creates the avatars. Sixty technologists and computer artists work on the designs. The company is loss-making but contracts in the pipeline mean it could come into profit in 2003.

The possibilities for DAG's technology seem encouragingly broad. It has created, for example, a virtual "signing" interpreter, an avatar whose lips and finger movements can be read by the deaf. Any programme maker could incorporate the interpreter in a production at minimal cost.

Automobiles and aeroplanes can be created in minutest detail and put through their paces without leaving the ground or garage. Hambly thinks, however, that his ambitions to make advertisements with virtual products of this kind could fall foul of industry executives fearing they will be cheated out of junkets in exotic locations.

Email Alan Cane at alan.cane@ft.com