The search engines need help in how to rate the quality of each of the various websites that make up the entire internet, and link popularity play's a major role.
Links can come in from a variety of sources, such as, Blogs, Directories, Forums and Reciprocal partners.
If one particular site has a large number of other sites linking to it, then it makes sense to the search engines that that site has something good to offer its users, therefore it must be an above average site, and it will rank higher than a similar site with fewer links.
However, because links are easily manipulated, the search engines have applied a ratings system to links also, making some links more valuable than others.
Below is a list I've put together that outlines the factors used in determining the value of a link.
First is PageRank (PR), sites with no or low PR indicates that Google considers this page to be of a poor quality. Therefore, their links are of little value also, and this rules them out as a possible linking candidate.
We consider web pages with a page rank of three or higher, out of a possible 10, as the minimum to consider that site a good candidate for a quality-linking partner. Pages with a high PR indicates that that particular website has already passed the quality test, and the link value increases proportionally with the PR rating.
Secondly is the relevancy of that site to yours, if the two sites do not share a common theme, then it does not make much sense that those sites would be linking to each other.
Other factors include the number of links on the page that links to your site, (the fewer number of total links the better value each link will carry). Also how many clicks away the linking pages are from the home page, by the time a page gets further than three clicks from the home page its PR & link value are probably approaching 0.
In summary, the best quality links are only high PR websites that share the same or a similar theme as yours, they have few links per page, and they are three clicks or less from the home page.
High quality inbound links are the only links that will help you to get a higher search engine rank. Even if you only have five high-quality inbound links, then you'll get more and better listings than with 100 poor quality inbound links.
Low quality inbound links will not increase your search engine rank, and in the worst case, too many low quality links can cause the search engines to penalize your website and lower your rank in their search results.
Participating in automated link exchange systems (link farms) that automatically generate links to your web site can get you banned on search engines. It is important that the focus be on the good quality links.
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