Yahoo CEO Marissa Mayer was interviewed by Fortune‘s Pattie Sellers on Monday night in New York City, as part of a Fortune Most Powerful Women dinner. What follows is an edited transcript of the conversation.

Pattie Sellers: I’m going to bring up something that you said to me in November of 2012 when I asked you what is Yahoo YHOO .

Marissa Mayer: Okay.

And this is what you said. What we’re really focused on is inspiring and delighting users amidst their daily habits.

That’s right.

On your earnings call, though, you said that Yahoo’s mission is to be an indispensable guide to digital information, yours and the world’s. Are they the same thing? Or has the mission evolved?

I think they are. But I think that one of the things that we did is we first got in there and started thinking about what we wanted Yahoo to be. It was clear that it’s new, it’s sports scores, it’s stock quotes, it’s mail, it’s search.

It’s a lot of things that people use every day. It’s one of the most popular things that people do on their phone. We knew it was going to be a big part of the mobile mission. But I think that the first mission, the way I framed it, it is the same. But it was really viewed more from the company’s perspective.

Nobody wakes up in the morning and says who am I going to turn to for my daily habits, right? And so to fill a real user need and to have a real user proposition you have to say, “Wait. What is it that we’re providing to the users?” Because they don’t really want us to provide for their daily habits.

And so I think as we evolved and crispened it it’s still about search and email and news and sports and finance, now fashion. A lot of the different things that we do. But when you look at it, what was really the role we played throughout the course of the Internet… is to be a guide.

The company started off as Dave and Jerry’s Guide to the Worldwide Web. And with all the proliferation of information, it really comes down to how can we help people make sense of the news out there? How can we help then make sense of their own information, email, how can we help them find the most of what they want to find?

You walked into Yahoo in July of 2012 as a real expert in mobile. VP of local and location services at Google in charge of Google Maps, Google Earth. You had negotiated a really interesting acquisition in Zagat for Google. So now you’re a mobile first company at Yahoo. How has mobile evolved differently from what you expected? And what have you learned?

Well I think that it was so interesting. Because you look at how fast things have come in just since 2012. Because you remember during that interview in November we were talking about which platforms were going to end up mattering. iOS, Android, Blackberry, Windows.

I ended up actually in a little bit of trouble because I made a comment about Blackberries and how we were replacing them with iPhones and Android phones. But, as time has moved on, it really has become a duopoly of those two operating systems. And it’s really become very app-focused.

And it was interesting because, at the time, as I was going around Yahoo putting together my plan, my team, it was funny because people were talking a lot about the mobile web, we were talking about the four or five different platforms that we needed to work on.

People were talking about HTML-5. And we had to pick a lane. And we were late to mobile, so we had to pick correctly. And when I looked at that I just felt like apps were such a more rich experience for users.

And it was becoming clear to me when you look at how much time you spend on your phone, in apps versus the web, it’s almost insane because it’s gone from 84% of the time, 86% of the time, 88% of the time, 90% of the time. It gains like 2% every month.

Which basically means every time you look at your phone, you’re expecting an app-like experience. Which means now if we give you web pages, they’re going to look passé. And so I felt really strongly we needed to bet on native applications as part of our strategy. And really narrow our focus to platforms where we were going to have massive reach. So we picked our lane and we said okay, we’re going to do native apps, we’re going to do native advertising inside of them, we think that’s going to work better than banner ads, which of course is a bit of a bold move because Yahoo is the original success in the banner ad space.

And we still do have a big banner ad business that we call our display business.

But it’s declining.

But it’s declining. And we needed to come up with a new way of basically supporting our sponsors and supporting our content. And so we said native apps on these two platforms, native ads is the exclusive way we’re going to monetize it across search and display.

And we went around basically building that and pulling together a team. So when I think about it, it’s funny because then, in November of 2012, it was a debate. Which operating systems, HTML-5 or apps. And now, even people who don’t necessarily work in technology would say how could that have even been a question?

So 90% of use is within apps?

Is within apps.

And will we possibly get to 100%?

No, because I think you will always have a long tail of information finding queries, reasons that you want to go and see websites. There’s obviously a reason to have a mobile-friendly web site. But I have a feeling that the apps that people tend to use every day are going to be the ones that are installed on their phone, they’re fast, they’re familiar. They tend to address a single use purpose.

And so that’s really where our focus has been. And I think at the time it wasn’t clear. We ended up picking correctly, but I remember at the time it wasn’t clear. I promoted a terrific guy, Adam Cahan. And he turned out to be a brilliant choice because he’s terrific at design and he has a real ability to inspire and motivate people.

And he came via an acquisition, right?

He came in via an acquisition before my time though. So he was there already. But I used to joke that one of the reasons I promoted Adam was because he was one of the few people at Yahoo who agreed with me that apps were going to matter.

And that we needed to build native apps and that we should do native advertising and that there was going to very quickly be two dominant platforms.

So Marissa, talk as much as you can about how you see the advertising market display, programmatic, native evolving over the next five years. And what are you not doing, given your view?

Sure. Well I think we’re chosen to focus on four types of advertising that we think are poised for growth. I will say – you know I signed up to come to Yahoo because I like to work hard and I wanted to work on a big challenge.

But you show up the first day, you have $5 billion worth of revenue. And every revenue stream is in decline, right? And there’s no revenue streams that have a future. And so the very first thing that you have to do is you have to build something that’s big enough, that’s growing fast enough to matter in the context of $5 billion.

And it’s a big loft problem, because if you even find $100 million of new revenue, that’s 2% growth. Or it replaces 2% of decline year over year. And so we had to very quickly develop a mobile strategy, say how do we not get left behind in the we world? How do we define a mobile strategy that can succeed?

And what are the ads going to look like? Because it doesn’t feel like just taking banner ads and making them smaller is a good experience. It just doesn’t seem like where things are going to go.

And so we got very focused on obviously mobile, video, native, and social. So the video, native, and social are really the three ad types that we monetize mobile exclusively through.

And you have this acronym MaVeNS. And so it’s just an easier way to remember it. My husband loves to play Scrabble. The morning of my earnings call I came and said if you had the vowels you want and these four consonants, what would you do? And so he came back with MaVeNS, I was like it’s great.

That’s fantastic.

But MaVeNS is a convenient way to remember it. But we think that video is growing, it’s growing on both desktop and on mobile. But native advertising is what’s made search work from the very beginning. The fact that all of our brains are just terrific pattern-matchers, right.

I studied a lot of science and cognitive psychology in school, and that’s what the brain is great at seeing. You see something and you recognize the pattern. So we always used to talk on the search results page, you want the form and function to follow a certain pattern so people see your result and they’re like I get it, I get it, I get it. They kind of immediately find that pattern.

And so when you’re looking at native advertising, you don’t want the ads to be interruptive. You want them to match the content around them, follow that same form and function. Because that makes it easier for your end viewers, readers, watchers to actually be able to consume the content.

And also, it’s interesting because in many ways I think puts an onus on the advertiser and the publisher to come up with more relevant advertising that can ultimately inform, engage and retain the end users the same way a piece of content would.

Speaking of creating content, you’ve made some very high profile hires, including Katie Couric. Why did you hire Katie and how do you measure her return on investment?

When I first arrived, it was really important to me that we start to raise the quality of content on Yahoo. And I also wanted us to be able to create some of our own original content. Because otherwise, we’re just republishing other publishing partners. And that’s good, but it doesn’t give you a voice, and it doesn’t necessarily differentiate you. And so we had been working really hard to raise that journalistic standard, raise the quality bar of our content.

And I had been thinking about how to do that. And then Katie was kind enough to actually come and speak at, we had a summit for some CMOs. And I got to interview her. I did a terrible job. But at the end, the last question I said what’s next for Katie Couric?

And she said you know well I think I’ve always been a big fan of digital, I’ve always wanted to work in digital. I was like thank you Katie, thank you. Like our advertisers lapped it up and I was like it’s great, it’s exactly what these CMOs need to hear.

But I just through frankly it was just Katie being polite in terms of what she might want to do next, paying a compliment to the Internet. And so as we walked off stage I said thank you so much for that, that was amazing, and the CMOs are really happy, I’m really happy.

But I was like in your last question, last answer, should we talk? And Katie said yeah, we should talk. And we sort of started to look at the platform for the Internet is huge. And it’s different than broadcast television. But there’s such an opportunity there to be on a different schedule.

To focus more on quality, to take more risks. And I think Katie could talk more about this. But I mean we’ve been so tremendously happy with the quality of the content. The guts I think are as big as prime-time interviews, and in some cases bigger. We get to break a lot of interesting news and viewpoints.

Very seriously though, how do you measure the return? This is a big investment.

You can do things like measure the ads that you’ve sold against those programs and the follow-on views. And they all mean this is a very profitable and good investment.

But I will say, to me it was really more about raising that journalistic standard, getting our name out there as people who really want to participate in news and participate in the dialogue in a different way than just republishing content.

And because part of MaVeNS is the VE, right, the video. And we could tell that people wanted to consume more and more content on video, both on the web as well as on mobile. So we were really excited.

I also think, when I look across the different digital players, one of the things that has set Yahoo apart over the ages is a personality, and a viewpoint. There’s a lot of other places where there’s less personality, or it’s the personality of your friends, and it’s different for each person.

But Yahoo very early in our history started working a lot on creating content, organizing content and not being afraid to entertain and inform. And it felt right to build on that part of the legacy.

Marissa, you’ve made, I think it’s 52 acquisitions since you came in for I think a total of $2.2 billion. What have you learned about making the right acquisition? And what’s the key to making an acquisition succeed?

Sure. Well I mean we’ve done a lot of different types of acquisitions. And we basically think of it in three stacks. We make talent acquisitions. Because one of the very first things we needed to do was bring new entrepreneurial spirit, people, viewpoints to Yahoo.

And so we had a lot of small companies where we would see we needed to get a jumpstart in mobile. They built a beautiful mobile app, it would sort of stall out at a couple of hundred thousand users. It wouldn’t become the next Facebook, Twitter, etc., but still they had a talented team that new how to work together and build a compelling app.

And so … acquisitions where we would buy the company and say okay, please stop working on that app, please build Yahoo Finance for the phone. Please stop working on your app, please build Yahoo News for the phone. And so we did a fair number of those, and that’s the lion’s share of those acquisitions.

We did somewhere it was about building blocks. And I called them building blocks when they were about people, and they’re also about technology. So for example, we bought a company called Aviate. Our three big strategic pillars are search, communications, and digital content.

And we wanted to make sure that when we build a building block we’re getting technology that applies to cone of those pillars. And so, for example, Aviate is contextual search on the mobile phone across apps with deep linking. So it’s a great example of where we don’t just want the people, we want the technology to actually bolster our search offering.

And then you do big transformative strategic acquisitions. Like Tumblr. We also did BrightRoll which is a video advertising network. And Flurry, which is mobile analytics. And my view is the big transformative strategic pieces have to build toward the MaVeNS future. And I will say, to finish the coming in big problem of $5 billion of declining revenue, have to build something big enough growing fast enough to matter.

We did $1.1 billion of revenue last year on the MaVeNS. Which is pretty staggering. From basically nascent to nothing in 2011. So in basically two years to build a $1 billion revenue steam is pretty amazing.

And yes we had a great set of assets, products, users, in order to do it. But my view is I sort of said, we’ve kind of gotten to first base or completed step one. Because if the idea was we needed a $1 billion base of revenue that was growing fast enough, basically it almost doubled year over year last year, that’s growing fast enough and is big enough to matter to a five billion dollar revenue base.

$1 billion of growth that’s going to continue to grow. Everyone believes mobile, video, native, social and the world of digital advertising is going to grow for the next decade at least. We’ve build ourselves a future. And I’m really proud of the team at Yahoo for doing that.

Do you still have this rule of one hundred million, which is investing in products and ventures that have a good shot at reaching one hundred million users and $100 million in revenue? Is that a rule?

Well, not and, or.

Or, or?

You need to have something where can we get a hundred million users. Because we have more than a billion users on Yahoo each month. There’s only three Internet companies: us, Google GOOG and Facebook FB that have that. And we have $5 billion in digital ad revenue, roughly $4 to $5 billion dollars in digital ad revenue.

And there’s only three companies for which that’s true, the same. And so you want to have something where you are building a product that is big enough to matter, to impact users, really provide for their needs. And also matter to the business at scale.

And it’s unfortunate because sometimes you have people who have a really good idea, but it’s an idea that’s going to be $5 million or $10 million a year. And that’s a good startup. And unfortunately when I talk to people who are in that state, you say look, that’s a really good idea and maybe it will get even bigger than you think it will be. But maybe you should go out and try that on your own. Because I’m also – I really admire all the women in the room, especially the mentees who are entrepreneurs.

Because being an entrepreneur is hard. And I think that you should encourage people to do entrepreneurial things. And a lot of cases when you’re dealing with the issue of trying to grow Yahoo where you need $100 million, a few hundred million dollars, $1 billion dollars of fast growing revenue, in some ways it’s better to say hey, go out so your entrepreneurial roots and see what you can grow.

And maybe it becomes big enough that it will ultimately matter. And maybe they’ll just learn a lot about rowing a company and growing a business. But both of those are good.

So here we are, in the Time Warner Center. The building owned by the company that 15 years ago did the most infamous marriage of distribution and content, AOL Time Warner. A deal that failed. Tome Warner spun off AOL, AOL kind of got its act together under Tim Armstrong, danced with you about a possible merger with Yahoo.

And last week, Verizon buys AOL AOL for $4.4 billion. How does that change the landscape? And do you think about the opportunity to partner or to whatever extent with a carrier, with a distribution platform?

Well I think distribution is always a great thing to have, especially in mobile. Because we have terrific distribution on the web. More distribution on mobile is always something that overall is helpful. But I would say I have so much respect for Tim.

We worked together for years at Google and he did a terrific job at AOL. But I will say, whole some people on the outside saw similarities between the companies, we didn’t really. AOL made a big bet on programmatic advertising. Where we’re really making our bets on mobile, video, native, social.

There was some overlap in the video space. But overall I would say that in my view we were taking the ads into a slightly different, into a different space with native. And also, it’s rally important to me that we maintain a brand and a relationship with our users.

That we’re not simply helping other sites monetize. That we actually are providing services to end users that they really value, that they continue to turn to Yahoo to inform, connect, entertain, etc.

How do you think about the landscape shifting, as you see deals like this taking place? And if you don’t want to comment on that deal specifically, there is a movement for distribution and content to kind of marry again. How do you see that developing and what does that mean for Yahoo?

I think for us, as I said we had solid distribution and a global presence and that’s helpful. But I do think we’re constantly looking for new partnerships. We signed a partnership for example in a different way with Mozilla in November gaining somewhere between 3-5% of North American search share.

Which is significant in search. We really brought ourselves back to the place where we had been five years before in terms of overall market share. And it’s a terrific partnership with us. So there’s no question that gaining more distribution for our search.

For our email we recently resigned a partnership with a long time partner for Yahoo in the UK, British Telecomm. So we’re overall really excited to see what we can do in terms of getting mail and search and our digital content distributed more.

Marissa, what advice do you have for these 19 mentees who are going back this week to their home countries and probably rethinking their lives and their careers?

Well I mean I think there’s so much advice, and there’s also the advice that’s useful. I would say – I was just talking about it here with some of my tablemates. But the advice – I had a bunch of good advice.

In fact I participated in Katie’s book a long time ago, The Best Advice I Ever Got. And maybe actually I’ll do both of them. I’ll start with the Katie book on The Best Advice I Ever Got. I was choosing between Google and McKenzie.

And I was trying to make up my mind in 1999 about where to go. And I enlisted the help of a friend. And we were incredibly quantitative and we had matrices and graphs analyzing all my different job offers and where I could go and how it would all work out.

And I found it completely overwhelming. And at the end of the night, I decided I was going to choose my job the next morning. I just had to, it was like May 11 and I had to decide on like May 12th, I had to decide. It’s crazy, you’re graduating in like a month. Stanford graduates a little later than other schools.

But it was like you’re graduating in a month and you just have to pick a job. And at the end of the night I had just really overwhelmed myself. And my friend turned to me and he said, you know, you’re putting a lot of pressure on yourself to pick the right answer.

And he was like I have now studied these 14 choices as much as you have. I’ve thought about them, I’ve graphed them, I understand them as well as you do. And I just have to tell you that I don’t see what you see. I don’t see a right answer here. I see a lot of very good choices.

And then there’s the one that you commit to. And you make great. And I think that as someone who – I often see the world in black and white, and I think that it was really helpful in that moment to say wait, there’s a lot of really great things here.

Now just pick one for reasons you can articulate, for reasons you can’t articulate. But the most important thing is to really commit to it.

And the other piece of advice we were talking about before I came up here was being bold. So I will say I think that being an engineer, I think my tendency is to be more conservative. To be more iterative. Even on innovation and everything, I know I would rather bring out a very small early product and make it slowly better.

And I worked with Larry and Sergey, the founders of Google, for 13 years when I left. And my last conversation, because the announcements were imminent, I was going to have my conversation with Pattie. I would end up having that conversation later that day.

But Sergey gave me all kinds of advice and encouragement. He said he would miss me but also said here are my ideas about Yahoo because obviously at Google we had studied Yahoo a lot. He went into like immediate minutia. Change the logo, which we did. Change like all these different things.

But right as I left I had my hand on the door, I said, “Sergey, it’s time for me to go, I’ve got to go.” And I had my hand on the door and he said, “Marissa wait.” And I turned around and I said – and he looked at me and he said, “Don’t forget to be bold.”

And I actually hear that in my head every single day that I’m at Yahoo. Which is if you really want to create something transformational, if you really want to make a difference in your life and other people’s lives, yes it’s always easy to take the safer incremental choice and to iterate.

And I think that’s sort of more instinctual to me. But Sergey knew that probably the thing that I would need the biggest push on as I left was to remember to be bold. And that has helped me in so many different moments, be it deciding whether or not to acquire Tumblr, deciding what to do with our Alibaba BABA stake that ended up being worth somewhere on the order of $30 to $40 billion.

And so to have that as the refrain in the back of my head was actually really helpful. So hopefully those two pieces of advice help our mentees.

Thank you. Don’t afraid to be bold. That’s the message for everyone. Thank you Marissa.