By Jon Fortt

HALF MOON BAY, Calif. – Tech visionary Lawrence Lessig made a sobering prediction Tuesday at Fortune’s Brainstorm Tech conference: “There’s going to be an i-9/11 event,” he said, “an event that demonstrates the instability of the Internet, and that inspires the government to a response.”

He said he believes this digital disaster – a major hacker attack or other act of cyber-terrorism in the next 10 years – will prompt the U.S. government to clamp down on Internet freedoms in an online parallel to the Patriot Act.

Stanford professor Lawrence Lessig predicts that an online attack will prompt the government to clamp down on Internet freedoms. Photo: Gary Wagner

Lessig, a Stanford Law School professor who founded its Center for Internet and Society, said he came to this conclusion after a conversation with former federal counter-terrorism adviser Richard Clarke. Lessig said Clarke told him that the Justice Department had already written up much of the Patriot Act before the terror attacks of September 11, 2001, and that there is a similar proposal on the shelf in case of an Internet catastrophe. Advocates of Internet openness will not be thrilled about its contents, Lessig said. “Vint Cerf is not going to like it very much,” Lessig recalls Clark saying.

It just happened that Cerf, and Internet pioneer who now works for Google (GOOG), was in the audience. And the warning obviously got his attention.

The prediction was part of 2018: Life on the Net, a panel with tech thinkers Lessig, Joichi Ito, and Philip Rosedale. Conversation topics ranged from copyright policies to virtual worlds to mobile economies. The panelists were generally optimistic about how the Internet will develop – Rosedale, founder of virtual world Second Life, made an unsurprising prediction that virtual environments like his would comprise the majority of Internet traffic in a decade, for example. But their discussions about the potential pitfalls were a bit more entertaining.

Entrepreneur and venture capitalist Joichi Ito said would-be investors in mobile technology should take a warning from Japan’s market. Photo: Gary Wagner

Ito, an entrepreneur and venture capitalist, had some words of warning for others investing in mobile businesses. In today’s fixed-line Internet, he said, the money that companies make from their ideas tends to get plowed back into the innovation economy, seeding startups like Facebook and Twitter. In Silicon Valley’s virtuous cycle, successful entrepreneurs and companies tend to keep the money circulating.

But no one should assume mobile will work the same way in the U.S.: Just look at Japan, where the mobile Internet is big. There, just as here, the wireless carriers who own the networks want a piece of the transactions that happen on their networks. The result is that in Japan, carriers have taken a sizable chunk of the spoils from successful ideas and sunk them into their own “bloated R&D labs,” Ito said.

News Corp. President Peter Chernin says online video is a premium money-making opportunity. Image: News Corp.

By Jon Fortt

HALF MOON BAY, Calif. – Looking at big money-making opportunities online, News Corp. (NWS) President Peter Chernin pointed to video, mobile and overseas markets as good long-term bets.

In an interview with Fortune editor at large Richard Siklos at Brainstorm Tech on Tuesday, Chernin said advertisers still haven’t completely embraced the online opportunity, and that they continue to have a television mindset. He said an advertiser recently told a MySpace sales rep to come back when the social network has a “SuperBowl-level” event. What the advertiser failed to recognize, Chernin said, is that the MySpace homepage has as many viewers every day as the SuperBowl has once a year. (Of course, there’s a good argument that MySpace visitors aren’t quite as engaged with the content as SuperBowl viewers are.)

He also addressed the challenges News Corp. faces in getting a decent price for ads on MySpace. (The company partners with Google (GOOG) to monetize the site.) The answer, Chernin said, may be to look beyond banners and text ads. “What drives ad prices is scarcity,” he said. “The place that is most promising is probably in video. By definition there’s more scarcity in video, and there’s even more scarcity in premium video.”

Mobile is attractive because of its scale. It “is by far the most penetrated device on earth,” he said. “So it’s this enormous distribution platform, but by definition you’re not going to be watching two-hour movies. It’s going to be interesting to see people develop uniquely mobile content.” It will take the medium a long time to develop, he said and predicted that in two years, the industry will still be trying to figure mobile out.

Geographically, Chernin said he expects emerging overseas markets to show faster revenue growth for News Corp. than the U.S. and more developed markets. “We’ve invested in cable channels in all sort of Podunk places.”

By Yi-Wyn Yen

HALF MOON BAY, Calif. – If you’re reading this post, you probably have a Facebook account and you might have encountered a phenomenon on Facebook known as friend deflation.

Thanks to the popularity of Facebook, some users are getting lots of ”friend requests”  – including some from people they don’t consider friends. Fortune Brainstorm organizer David Kirkpatrick held a fireside chat with Facebook’s chief operating officer Sheryl Sandberg, who was asked how users can overcome the social pressures to accept such requests. Sandberg suggested users create different lists for different friends.

“As we’ve opened up the site from college students to the public, people have different definitions of the word friend. Anyone can create different friend lists, whether it’s your personal friends or professional friends, that gives people different access [to your profile],” she said. She added that a Facebook user can choose to ignore a friend request and the rejected person won’t be notified.

An audience member yelled out that Sandberg should make a feature to “acquaintenance” someone.

Asked if she thought Twitter, a site that allows users to write brief updates of their status, was the next hot company, Sandberg responded by talking about Facebook. “I don’t know if I’m an expert on Twitter, but I will say that there is a lot of conversation about things that are short. Is there value in throwing a sheep or poking someone? If you think about it as entertainment or communication, I think that’s really valuable,” she said.

Sandberg’s interview, packed with several hundred atteendees, was the most popular session of the day. Longtime tech expert Esther Dyson asked the audience how many had Facebook profiles, and all but roughly 20 hands went up.

By Jon Fortt, Fortune senior writer

HALF MOON Bay, Calif. – Sustainability will influence the next generation of Internet technology, according to Cisco (CSCO) chief technology office Padmasree Warrior.

At Fortune’s Brainstorm Tech conference on Tuesday, Warrior and technology visionaries from Nokia and Xerox sat down with Strategic News Service’s Mark Anderson Tuesday to talk about dealing with information overload, mobile innovation, and the major tech transitions ahead.

One idea that’s likely to get a lot more attention, Warrior said, is doing more while consuming fewer resources. “Sustainability is going to be a great driver,” she noted. “It’s actually innovating for constraints that will drive the next generation of technology.”

Warrior said some of the major innovation trends she’s watching are the Internet’s transition into an entertainment platform, the emergence of communities as a driving force in communication, the power of video as a business tool and the rise of new global economic powers like China and India.

Xerox (XRX) CTO Sophie Vandebroek talked about software her company is cooking up that sifts through oceans of digital information and serves up bits that are most likely to be relevant to the task at hand. For instance, for a law firm it could plow through digitized legal files and pull out information about people and events that are most likely to have an impact on a given case. It’s an attempt to help knowledge workers who are drowning in data. “It’s like food – we have too much food with these all you can eat buffets,” Vandebroek said. “You have to control yourself.”

Nokia (NOK) CTO Bob Iannucci said mobile technology is transitioning from a focus on hardware – handsets, towers and the like – to a focus on software and services. He said mainframes, mini computers and PCs all went through the same changes, and the implications were profound. One of the resulting challenges he’s pondering in a service-oriented mobile world: How do you harness the value of people’s personal information in a way that doesn’t freak them out? Can companies like Nokia give customers access to their data in a way that helps them answer questions and make purchases?

From the audience, Google (GOOG) Chief Internet Evangelist (and Internet pioneer) Vint Cerf pointed out that the way people are beginning to use the mobile Internet is fundamentally different. More than with the PC based Internet, mobile users are likely to get online for information related to where they are and what they’re doing at that moment. Warrior agreed that the tech world will have to pay more attention to that shift: “Context and location awareness will become really important,” she said.

By Yi-Wyn Yen

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HALF MOON BAY, Calif. – Fortune’s Brainstorm Tech conference kicked off Monday night with sharp-tongued bloggers ripping into each other and the companies they cover.

Moderator and Fortune senior writer Adam Lashinsky discussed the competitiveness of the blogosphere with Om Malik of Gigaom.com, Kara Swisher of the Wall Street Journal’s (NWS) AllThingsD.com, and Robert Scoble of Scobleizer.com. He asked the trio what made their sites unique, which quickly devolved into a trash-talking session.

“I’m like Fortune, but only in real-time,” quipped Malik, which made the audience roar with laughter at the confab dinner. Malik said his Gigaom blog was interested in the “tech industry.” Goaded by Lashinsky, Malik said he was not interested in covering “tech yesterday” — companies like software giant SAP.

For her part, Swisher admitted that she’s spending most of her time covering Yahoo (YHOO) and its revival efforts. She dissed Lashinsky’s post early Monday about Yahoo CEO Jerry Yang being a “goner” now that Yahoo’s board has given activist investor Carl Icahn three seats on its 11-member board. Swisher griped that Lashinsky and others covering the Microsoft (MSFT)-Yahoo travails say Yang will be fired soon, but don’t specify how he’ll be fired. “These things require logistics,” she said. “There’s no real leverage except [Yang] himself to move on.” (Several top Yahoo veterans were in attendance at the dinner, including senior VP of communications and communities Brad Garlinghouse, who will leave the company in August, and Jeff Weiner, the former executive VP of Yahoo’s network division who departed last month.)

Swisher wasn’t afraid to openly rebuke top tech blogger Michael Arrington, the Silicon Valley star of TechCrunch. Swisher, a former longtime reporter with the Wall Street Journal, whose AllThingsD blog is a subsidiary of Dow Jones, said she and former colleague Walt Mossberg created the site because it was “really important to bring standards to blogging from the Wall Street Journal and give full disclosure.” The comment was viewed as a slap at  Arrington, who has been criticized for writing about companies he invested in. (See correction at end of story.)

Lashinsky questioned if Swisher was being fair by constantly picking on Facebook CEO Mark Zuckerberg. Swisher admitted she shouldn’t have called Zuckerberg, 24, a “toddler CEO.” She said that his handlers kept saying that because he wore Adidas flip-flops and cute T-shirts and she wanted answers on how the company earns its profits. “I wanted to look into the fact that they weren’t making a lot of money,” she said.

Scoble meanwhile was accused of pandering to the companies that he covered. Scoble said long before Fortune ran its latest cover story about Tesla’s troubles, he spent time behind the wheel of the elite electric car with investor Elon Musk and raced blogger and entrepreneur Jason Calcanis as 850 people followed them live online on Qik. Quipped Malik: “He branded Jason Calcanis. He branded Tesla. He branded Qik. And Skype.”

Scoble said that the difference between bloggers and traditional media like Fortune magazine is that the audience participation helps keep his blog honest. “This is written by the audience. People participate in fact-checking,” he said.

Lashinsky, however, got the last laugh. “In the old school, we like to get it right the first time.”

Correction: An earlier version of this story said that TechCrunch’s Michael Arrington had been criticized for  not disclosing investments from companies he covered. In fact, Arrington had been criticized for writing about companies he invested in. He disclosed those investments on TechCrunch.

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By Michal Lev-Ram

HALF MOON BAY, Calif. – Is technology making the world a better place? That’s just one of several big questions that a panel of tech luminaries tackled at Fortune’s Brainstorm: Tech conference, a three-day, invite-only event that brings together some of the top executives in the industry.

The conference kicked off with a panel on how technological innovation is affecting the world. Participants like Michael Dell, founder of Dell (DELL), and Salesforce.com (CRM) CEO Marc Benioff discussed the next wave of innovation – platforms and collaboration – and the value of technology for businesses and societies.

One of the major advantages that technology has brought to companies is the ability to listen to customer feedback like never before, the panelists said.

“The mechanisms you could use to listen [to customers] were massively turbocharged with the Internet,” said Dell, who recently returned to his former role as chief executive. His company expects to have about 2 billion conversations with customers this year alone.

But it’s iPhone-like open platforms — the type that enable developers to create all sorts of applications — that the panelists said are bringing about the next wave of innovation.

“I don’t care if you’re in software,” said Gary Hamel, director of the Management Lab and another panelist. “Even a toy company like Lego can build a platform that allows people to innovate.”

One audience member even suggested that a platform-based approach be used in car production. That idea was quickly shot down.

As for the question on whether tech is making the world a better place, most participants agreed that it is: “Technology has definitely made the world a better place,” said Hamel. “What the Internet is doing is megapowering people to create like we’ve never seen before.”

But Benioff, the CEO of Salesforce.com, had another take: “I’m not sure if the world is better with technology, but maybe the world is faster.”