Intel (NSDQ: INTC) President and CEO Paul Otellini’s keynote kicked off with a remake of The Buggles’ Video Killed The Radio Star, changed to say the internet killed all sorts of things. He then launched in to his view of the future of the internet and the electronics industry.

“Rather than us go to the internet, the internet’s going to come to us.” Otellini says the next generation of the internet will be “proactive, predictive, context aware.” Starts a demo of an augmented reality device that does things like translate street signs from Chinese into English when they’re filmed with its camera, or pulls up reviews when the camera’s pointed at a restaurant; it can also do speech-to-speech translation. This device is somewhat similar to the device Bill Gates showed off at the end of his keynote last night; both companies appear to see devices that help link the physical and online worlds as an important future trend. Seamless, automatic context-awareness was key here, and it was then used to deliver internet content over a mobile broadband connection.

Intel’s Menlo chip solves the first obstacle of the mobile internet: silicon. Menlo offers high computing power with low electrical power draw; Otellini shows off a Menlo mobile internet device running Windows Vista; it fits in his palm. The second obstacle is ubiquitous broadband access. Intel’s answer is, not surprisingly, WiMax. The third obstacle is search. Otellini says search needs to go beyond being a push service, and to access personal information and context so it can anticipate user needs. The final obstacle is user interfaces, which he says need marked improvement. Uses the Wii as an example of a more natural, entertaining interface.

A key trend is using the internet to connect people, and not just through email or traditional social networks. Otellini brings out the head of eJamming, which makes a service for musicians to collaborate over the internet. Otellini calls up a “volunteer” from the audience, who happens to be Steve Harwell, lead singer of the band Smashmouth; his band mates are online through eJamming, and they launch into their first hit, “Walking On The Sun.” Otellini dances, or at least tries to.

Otellini then brings somebody from the company BigStage out, to create an online avatar for Harwell. He snaps a few pictures of Harwell, and then creates an animated 3D avatar of the musician, and gives him a mohawk, sunglasses and nose ring. The guy from BigStage then says it can be put into different types of internet content like blogs or social networks; implying this is how people will interact with each other online in the future. He then says avatars can be embedded in all sorts of entertainment content, meaning users could insert themselves in music videos or other content. To illustrate this, he inserts Otellini’s avatar in a Smash Mouth video.

Otellini then brings it all together, by navigating to Harwell’s garage through a 3D world (as in the opening demo, which showed a similar 3D animation of part of Beijing)… the garage opens, and inside is the rest of Smash Mouth in avatar form. They can move around and speak, courtesy of technology from a company called Organic Motion, which makes motion-sensing technology that lets people manipulate their avatars by moving normally. Harwell moves off to the side of the stage where Organic’s cameras are set up; his avatar then appears in the virtual garage with the rest of the band, and they perform their song “All Star” with all the members in different locations. It’s all happening in real time; the musician’s timing is all on and Harwell’s movements happen on screen with little lag from when he makes them in person.

Otellini says this represents the “personal internet” of the future, where more computing power will enable richer interaction among users—and content. But new devices and new business models are needed to realize these opportunities, along with Intel chips, of course.