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A general assumption with SEO is more links = higher rankings.

What I would like to know is does Google know what those links are referring to.

I.e. if somebody gives a product a good review on their personal blog and links the review to another companies website (who are selling the product), would Google take consideration for the review/description link. Essentially would Google know that this link refers to a product. So if somebody is looking to buy a product, Google would know to include this page because the previous link said it sells products rather than just having information on products.

Then to take this further, does Google know if a link is positive or negative. For example, If somebody creates a post saying, do not visit example.com, example.com is bad because of blah blah blah. Would Google know that the link is getting bad feedback and therefore would it have a negative affect on rankings, or would Google go oh its just another link and give it better rankings?

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It's worth mentioning that Google can tag reviews, and company mentions even without a link. Google doesn't judge on these factors, if people are buzzing about a company negative or positive it will help the SEO. However company reputation damages conversions. So negative reviews can reflect on poor conversion. And with the raise of local SEO and rich snippets its making it even harder, soon we will see companies not having controls over the review stars and 1/5 star appearing in search results will damage clicks :P –  bybe Aug 2 '13 at 14:34
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2 Answers

In 2010 a website called DecorMyEyes which sold eyeglasses online purposefully had really horrible customer service to attract negative reviews and links. They were ranking very well in Google with this strategy. The New York Times ran an expose about the situation. To quote from DecorMyEyes from the article:

...the more replies you people post, the more business and the more hits and sales I get. My goal is NEGATIVE advertisement.

After this NYT story ran, Google made changes. DecorMyEyes got penalized. Links in negative reviews no longer help.

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Every link has a positive effect on a page's rankings (assuming someone isn't making low quality links either by choice or not). So that page, with their negative review, is helping the other page rank well by giving them that link. However, they most likely will be helping them better for terms in which a user looking for "X company sucks", etc. This is because the anchor text for the luck (assumption) and the surrounding text will contain text that contains those and similar words. It is a negative review after all. So the "helping" isn't really a good thing, per se.

However, if the reviewer really didn't want to promote or help the offending website, they really shouldn't be linking to them in the first place. By linking to them they are helping others find the company they don't think others should be using in the first place. Plus they are helping them out with SEO to some degree depending on how they do their linking and their content is written. Even then, if it is a bad review it still has some positive SEO effect as they are getting a link to their site probably with their company name as anchor text and possibly with related keywords. Plus there may be related keywords in the surrounding text.

Basically, a well written negative review will not link to the offending site in the first place. If they do, they aren't necessarily hurting the company or product they are reviewing.

FYI, quantity of links doesn't help SEO. Quality of links helps SEO.

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