In the past any large company could use subdomains as an effective reputation management strategy. As eBay and others have aggressively used subdomains to dominate branded AND unbranded search results, and Google has improved their sitelinks technology, any relevancy gain by treating subdomains as a separate site has gone away. Google is going to start treating subdomains like subfolders, and limit the number of results from any site to two.
There is still an upside to using subdomains because they allow you to feature standout content, but that upside relates to how marketable the content on that subdomain is, whereas in the past using lots of subdomains allowed eBay to get 20 of the top 30 listings for some queries, even if the subdomain was recycled garbage.
This move adds value to regionalizing sites and creating niche brands (like MobileCrunch), since currently I believe ebay.ca and ebay.com will be seen as two separate sites. If sites are too aggressive with regionalization or creating niche brands and start double dipping that way then Google might eventually look to devalue that move as well, although that will be more of a challenge because it would create a lot of collateral damage.
Official announcement by Matt Cutts at Pubcon, reported first by Barry.
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