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THE DAY AHEAD: &#039Low friction&#039 e-commerce gains steam

If you want the latest trend in e-commerce think "low friction." CMGI Inc.'s (Nasdaq: CMGI) venture capital unit is shying away from e-commerce companies that engage in heavy lifting, shipping and packing goods and focusing on players in the "exchange economy."

The pioneer of the low friction model is eBay Inc. (Nasdaq: EBAY). EBay matches buyers and sellers and takes a transaction fee. No grunt work, no mess, just profits (financials).

Will market makers rule e-commerce?

Although Inc. (Nasdaq: AMZN) has made its name selling and shipping books, CDs, electronics, and toys, the e-tailing giant is clearly going low friction to boost margins. Its zStore initiative, which sets up storefronts on Amazon for a transaction slice, is just the latest move in low friction commerce. Amazon's auctions were the first step. Yahoo! Inc. (Nasdaq: YHOO) is also eyeing a piece of the transaction pie.

This low friction thing counters the anticipated Webvan Group. (Proposed ticker: WBVN) IPO, which takes grocery orders over the Web, routes the goods through state-of-the-art distribution centers and then delivers to your house. Put simply, Webvan does a lot of work before it sees any profit.

ZDII spoke to CMGI @Venture partners Brad Garlinghouse and Jon Callaghan last week about this transaction economy theme.

"One of themes we're looking at is low friction e-commerce where you don't have to actually touch a product," said Garlinghouse. "You can take a cut and it scales well."

Garlinghouse said he is shying away from the heavy lifting e-commerce commerce companies. Garlinghouse is a big proponent of the "exchange economy" and has put CMGI's money where his mouth is.

On the business-to-business side, CMGI has invested in companies such as Chemdex (Nasdaq: CMDX), Critical Path (Nasdaq: CPTH) and SilkNet (Nasdaq: SILK) as plays on low friction commerce. Now, @Ventures is focusing on the business-to-consumer transaction-oriented markets.

And @Ventures has recently invested in, which focuses on consumers, and, which focuses on businesses. Both companies bring buyers and sellers together for a slice of the transaction. Garlinghouse expects similar investments to follow.

Given @Venture's bullishness on the exchange economy you might want to apply a heavy lifting test regarding the e-commerce companies you invest in.

Community still counts

The other e-commerce theme Garlinghouse and Callaghan noted was community. Loosely defined e-commerce community is basically bringing passionate consumers together to spend a lot of dough. Think fanatics.

Indeed, a look at (Nasdaq: GDEN) prospectus didn't prompt thoughts of the second coming of Amazon. But when you consider folks go bonkers over gardening, the business looked a little better.

"We're looking for e-commerce categories where there's passion from customers," said Garlinghouse. "Community helps build that loyalty in commerce."

So where's the passion? @Ventures has invested in (health food), (hiking, camping), and (comic books). All three mix a little community in with commerce. (jewelry) and (car parts) are also recent investments.

E-Brokers losing ground

We don't think it's worth buying into that "fundamental shift in the market" stuff Knight/Trimark (Nasdaq: NITE) gave the market yesterday with its profit warning.

But what is notable is the e-broker pizzazz is gone.

Online brokers are increasingly sounding like their bricks-and-mortar cousins -- get assets and sell customers a wide range of products. DLJDirect (NYSE: DIR) is talking about building real world branches to acquire assets, E-Trade (Nasdaq: EGRP) is diversifying and Schwab (NYSE: SCH) is the ultimate clicks-and-mortar success story.

Trading volumes are rebounding, but now everyone is an online broker. The volume is being spread among more players. It won't be long before e-brokers lose the Internet valuations and begin to look more like plain, old brokers. An e-broker comparison chart says it all.