Today there are two kinds of investors in the Internet space -- those who are gung-ho believers in e-commerce as the driver of all things Internet, and those who won't touch an e-commerce investment with somebody else's money.

Just this week I spoke with two venture capitalists making Internet investments in New York, one of each type. Meanwhile I had lunch with two more people from a third VC fund that has some e-commerce investments. The pair had just spent half a day arguing whether or not retail e-commerce plays were a huge opportunity or a total disaster waiting to happen.

At a moment in time when e-commerce seems to be at the core of so many business plans, and e-commerce companies like Amazon.com have driven so much value on the stock market and created so much wealth, it was a little surprising to hear such a split opinion on the subject of e-commerce.

On the one hand, it's easy to see what the e-commerce bulls like about the online retail opportunity. First, we're talking about a huge potential market -- everyone who buys anything and has access to the Internet either at home, school, or work. Second, the revenue growth rates are huge. From 1996 to 1998 Amazon.com's gross sales total grown by a multiple of nearly 39, from $15.7 million to almost $610 million. And of course, the stock market continues valuing e-commerce companies very highly.

But if you pause to examine the underlying softness, it's easy to see what the e-commerce bears are concerned about. First there's the issue of gross margins. It's an article of faith among the digerati that the Net tends to commodify items for sale. And risk investors like to steer away from that kind of retail. But shouldn't the advantages of retail e-commerce ultimately show up in the numbers relative to traditional retailers? Shouldn't the absence of real world locations and the ability to eliminate investor and carrying costs help online retailers achieve higher gross margins than traditional retailers?

Maybe in theory, but it's no secret that that hasn't happened. Just take the big boys, for example, the category killers that investors love. Over the last three full years for which each company has reported results, Amazon.Com's gross margins have consistently tracked 6 to 7 percent a year below those of Barnes & Noble's bricks-and-mortar stores, and that takes into account B&N's cost of occupancy. Amazon's gross margins haven't really changed much either, fluctuating between 20 and 22 percent for each of the last three years. Furthermore, since Amazon's chief way of generating value to consumers over and above Barnes & Noble leans heavily on price competition, its gross margins are constantly under pressure.

Second, there's virtually no barrier to entry for competitors. Sure, one Website might have an easier navigation than another, but that can be fixed on the fly. In e-commerce, where nearly all the inventory and fulfillment is in the hands of backend distributors, not the e-commerce companies themselves; anyone can establish a supply chain equal to any other player overnight.

Third, there are few ways besides just bloodletting-type spending on marketing to attract and hold customers if you're an e-tailer. And barrier to consumer exit? Forget about it. I know that personalization and community are supposed to allow consumers to form a bond with their e-commerce Websites, but it just doesn't work. If a cheaper copy of the same book is a click or two away, consumers will make those clicks. In the real world, location is a barrier to exit. You're just not likely to travel a few extra miles for a couple of bucks off on a new J. Randy Taraborrelli celebrity bio. There's location for e-tailers too, of course. Just look at the amount of money e-tailers set aside to share with portals and other destination site in tenancy deals.

But now the value of those tenancy deals are coming into question. Just last week Jupiter Communications issued a research report that predicted that direct portal driven commerce will only rise 2 percent between now and 2002. While 92 percent of the e-commerce executives Jupiter surveyed said they believed portal deals do drive sales, more than 60 percent of those executives said the portal deals contribute less than one-third of total sales. And fewer than five percent of those execs said they'd be highly likely to renew their current deals.

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So much for the new economy.

* Jason Chervokas (jason@atnewyork.com ) is editor and co-publisher of @NY.