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It's common knowledge that inbound links from other websites are an important factor in improving the ranking of your site and your aspirations of appearing on page 1 in Google searches.
What's not that well known amongst many webmasters and website owners is just how inbound links work and what factors Google uses to value them.
The underlying proposition is that the more valued (in the eyes of search engines) the site linking to yours is, the more value that link adds to your site. One of the key metrics used in valuing a site is PageRank, a complex algorithm that determines the relative value of a web page. In short, the higher your PageRank (PR) the more valued your site is.
So we've agreed that a high PR is good, and in theory a link from a high PR site will be strong medicine for your site. However, if the site or page giving you the link has a high number of outbound links i.e. it's sending links to lots of other sites, then the value of the link from this referring site becomes diluted.
Take a look at the diagram below. Chart 1 shows how a page or site with a relative value of 100 and 5 outbound links, will give each link a strength factor of 20 (100/5). This diluted value is referred to as LinkJuice.
The next chart shows how the same page with 7 outbound links has it's LinkJuice diluted in as much as each link now only transfers a strength factor of 14.3 (100/7). The final chart shows that the LinkJuice can be restored to 20 if the overall rating or PR of the page is increased (140/7).

This LinkJuice effect is often what causes pages that don't seem to be very well optimised or highly valued, to appear high up in Google search results. Analysing your inbound links and then developing a link building strategy will be the subject of a future post (just so you don't fall asleep here!).
Finally, for those of you of the more technical ilk, Google has implemented some significant changes in the way it treats Nofollow links. Previously, Nofollow links would not dilute the LinkJuice flowing from that link, rather dividing the total available LinkJuice between the remaining Follow links.
Chart 1 below illustrates how Google USED to calculate LinkJuice. Chart 2 shows how Google NOW treats Nofollow links. Basically, the available LinkJuice is now divided between ALL outbound links, rendering the Nofollow toothless for page sculpting purposes now.

Anyway, more on this subject to follow ('scuse the pun).
5 comments
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§ SEO Company
said on : 08/27/09 @ 10:39
I like this argument, the no follow attribute holds relevance, that is why all seo companies and bloggers are using the no follow attribute -
§ topsum
said on : 08/31/09 @ 15:22
does it mean that if one site use the nofollow, it's PR will be wasted? -
§ Wayne Attwell®
said on : 08/31/09 @ 16:32
Thanks for your comment. If a site/page uses nofollow, I wouldn't exactly say PR is 'wasted' but it definitely 'holds back' the PR and linkjuice that it potentially could pass on. Basically it's a selfish but quite reasonable practice, seeing as the originating site has created the PR through their own SEO efforts. They can pick and choose who should receive the linkjuice. -
§ jollygreat
said on : 10/09/09 @ 23:21
great article -
§ jollygreat
said on : 10/09/09 @ 23:26
good
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