The Net's next phase

(Fortune Magazine) -- In early October, at Fortune's annual Most Powerful Women Summit, blog queen Arianna Huffington, editor of the Huffington Post, led a panel called Understanding the Internet's Future, with Morgan Stanley (Charts) Internet analyst Mary Meeker, Motorola chief technology officer Padmasree Warrior, and Marissa Mayer, Google's vice president in charge of search products and user experience. Though summit sessions are off the record, these panelists agreed to let us share excerpts from their lively conversation.

HUFFINGTON: You may not know that occasionally in a dry suit Marissa Mayer snorkels off the coast of Iceland. And I'm delighted to have Padma Warrior here because I'm not on many panels where 50 percent of the women have accents. She runs a major operation. Twenty-six thousand engineers at Motorola (Charts) report to her. Padma, I was at a conference recently where Bill Gates talked about a "reality acquisition device" that would tell us, for instance, the best restaurants, where our friends have eaten recently. What are you doing about this device?

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Related From online content to mobile hardware to search to Wall Street, these four women wield a good deal of clout in their respective corners of the Internet. Arianna Huffington Syndicated columnist, author and founder and editor of leading liberal blogthe Huffington Post. Padmasree Warrior Motorola chief technology officer. She oversees a $3.5 billion R&D effort. Marissa Mayer Google VP in charge of search products and user experience. She was one of the search giant's earliest employees. Mary Meeker Morgan Stanley Internet analyst. She has been one of the most influential tech stock experts for over a decade.

Video More video The Huffington Post's Arianna Huffington and Google's Marissa Mayer discuss the cutting edge Google culture. Play video

WARRIOR: The Internet is still in phase two. Phase three will be about making it pervasive, where everybody in the world has access to it. To do that, there's going to be a different kind of device. [She holds up a cell phone.] At Motorola we call this "the device formerly known as the cellphone." In the next ten years the Internet will follow you. It'll be in your pocket, in your purse, on you.

HUFFINGTON: Whatever products Google (Charts) is developing, they are incorporating a 60 Percent to 70 percent failure rate. I find that utterly fascinating. Talk about that culture and how that translates into our lives.

MAYER: As we've grown, one of our challenges has been, How can we continue to innovate? We have a theory around failing fast. If you assume that one in five things you do will turn out to be really successful, and maybe two of five will be moderately successful, and the other two will languish, you want to do a lot of things. It's all about being agile. Most of the teams at Google are three to ten people. Five people launched Google News. About five people launched Google Toolbar. They operate like small companies inside the large company. Google is a lot like managing a VC firm, because you're placing bets on different teams. Our organization mirrors the Internet. It looks more like a network than a hierarchy.

HUFFINGTON Mary, of all the different trends, what do you think is going to be the most impactful?

MEEKER: I'm never good at one, but I'll throw out a few. Mobile is a really big idea. The reality is that the first computing experience for the majority of the world in the next two or three years will be on a mobile device. In 2006, 25 percent of the two billion mobile phones in use will be either 2.5g or 3g phones, which means that they're broadband-enabled. The mobile market is kind of where the broadband market was two or three years ago. If we look at data-services global revenue for the mobile market today, it's a $70 billion market. That's really big. And if we look at just the personalized ringtone, Screensaver, music part of the business, that's a $20 billion business globally - equal in size to the online global advertising market. That's equal in size to Yahoo plus Google plus MSN plus iVillage, etc.

Video is also really exciting. One of the things I love about search engines is you get great satisfaction - except when you search for video. The number of times you search for and can't get what you want is stunning to me. That's the opportunity. By our observation, half of all Internet traffic is peer-to-peer file sharing. Most of that is video. Most is illegal, and most is unmonetized. That's a big opportunity.

The third thing - and then I'll shut up: China has become the largest user of technology products and services in the world based on number of users. India will be the third-largest market some time in the next five years. When I started focusing on the technology market more than 15 years ago, I could go to Silicon Valley to figure out what's going on. Now you have to go everywhere.

HUFFINGTON: I know there are plenty of people in the audience from the traditional media, and hearing Mary talk must be scary. I find this whole fear factor - that they're going to be extinct - completely unjustified. Remember that over 60 percent of people still don't get their news or magazine information online. Only about 5 percent of advertising is online. I find the whole print vs. online debate obsolete. It's a little like the old Ginger vs. Mary Ann argument. I say, Let's have a three-way.

LISA GERSH, president of Oxygen Media: It's not the technology that's challenging traditional media. It's the users. They're going to consume it where they want to consume it. We look at it as an opportunity.

WARRIOR: It's a huge opportunity. Think about what happened with ringtones. When the mobile industry launched ringtones, I didn't think anyone would pay a dollar for two lines of a song.

MEEKER: That's probably a $5 billion business.

WARRIOR: We made $2 billion providing ringtones to service providers. It's interesting that people will pay $2 now to get two lines of a song to play when their phone rings, but they resist paying 99 cents for a full song on their PC or MP3 player. Why? Because it's personalizing the device. It makes a statement about who you are. Think about how to do that with video.

ANN MOORE, CEO of Time Inc.: Well, speaking on behalf of old media, one of the things that held us back was fear of cannibalization, because we had these $5 billion businesses to protect. What I've learned is that once we don't fear cannibalization, real brands are going to be very viable online. We're making substantial money already.

ANNE-MARIE SLAUGHTER, dean of the Woodrow Wilson School of Public and International Affairs, Princeton University: How limited are we going to be by the speed of our thumbs? Are you going to be able to talk to your phone?

WARRIOR: We just launched a device in China, where text messaging isn't possible because there are 3,000 Chinese characters. So we invented finger-writing recognition. With your finger you can write any Chinese character, and the device recognizes it. It's the fastest-selling device in China.

In India we're adding five million subscribers - like connecting all of Denmark every month - with a new low-cost device. Most people cannot read and write, so we went to an icon-based browser. As for the thumb typing, it depends on the generation. I have a 13-year-old son who types faster with his two thumbs than with his fingers on a PC. One of the things he said to me was, "Mom, why do you watch TV? It doesn't do anything with you. It just sits there." That generation thinks very differently than we do.

In China mobile romance is a huge business. People pay $2 a day for online dating on a mobile device. You put your profile on the Web, and you get an alert when somebody who matches your profile is near you at a party. You can text-message them. The statistics say that one in every six messages results in a date. They're bringing on 250,000 subscribers a month on this service. There's something called text flirtation going on at parties.

JULIET FLINT, partner, Kleiner Perkins: How are Google and Motorola thinking about the process of innovation in China and India?

MAYER: We've been rolling out development centers all over the world for this exact reason. We have Tokyo, Beijing, Zurich, Bangalore, Brazil, because we know that innovation is going to come from all over. We've also been making more acquisitions.

WARRIOR: We have to think very differently about the next ten years. Today about 2.5 billion people are connected on a mobile service. There are four billion people waiting to be connected. About a quarter of them are in India and China. About half of them are in countries like Brazil, Indonesia, Thailand and Vietnam.

The kinds of things they will need are very different. We've had centers in China, India, Eastern Europe - Russia, Poland - Singapore and Malaysia for a number of years. We've started opening research labs in China and India. We also fund internal startups to work with outside startups. That's the model most companies will have to go to in the next ten years. The Internet helps you do that because it flattens the equation of what's inside and what's outside.

HUFFINGTON: What is the dark side of the Internet?

MEEKER: The dark side is there are two billion users of mobile phones around the world. That will grow to three billion in the next five years, and almost every phone will have a video camera. There will be no privacy for anyone, almost anytime.

MARYLEE SACHS, chairman, U.S., Hill & Knowlton: What do you think of the future of Internet Protocol TV?

MAYER: It means there will be variable formats, not just 30-minute and hour-long shows. Basically you'll have a channel that's programmed just for you. If consumers are consuming TV that way, advertisers will follow.