I updated my SEO Book PDF today, noting among other things that Matt Cutts sorta hinted that an abundance of low link quality links could cause decreased importance in crawl priority.
Matt then went ahead and posted on his blog that some sites are completely removed from Google's index due to heavy reciprocal linkage.
The sites that fit 'no pages in Bigdaddy' criteria were sites where our algorithms had very low trust in the inlinks or the outlinks of that site. Examples that might cause that include excessive reciprocal links, linking to spammy neighborhoods on the web, or link buying/selling. The Bigdaddy update is independent of our supplemental results, so when Bigdaddy didn't select pages from a site, that would expose more supplemental results for a site.
I think that is probably the post that killed cheesy link exchange networks.
Can other people harm your site? Absolutely. The scalability of the web, and differences between living wages around the world created significant value in funneling around hollow PageRank to sell to naive webmasters which own sites which lack the qualities necessary to be citation worthy.
Knowing that having a certain percentage of shady links will kill your ability to rank in Google adds an additional opportunity cost to building shoddy links which. Things that were once "cheap" or "free" suddenly became expensive, and quality votes gained a bunch more value in the process as well.
This announcement of Matt's in combination with the search results reflecting this activity might be the single biggest thing Google has done in a while to improve the quality of information production across the web.
Fake it till you make it trading to the top still may work well enough in Yahoo! and MSN, but it is not a viable Google solution. If Google could plug some of their other holes they would be much harder to manipulate than most webmasters would like.
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