Recent posts on the topic of the Dominic and Esmeralda updates have introduced the idea of SEO neutralisation as a possible goal by Google. As far as I can tell, there is no hard data to back this up, but it remains an interesting topic to discuss - specifically whether it makes rational sense.
Too often analysis of updates and the Google algorithm in general lapse into detailed hypotheses with no hard evidence, forgetting about the basic core of search - that is identifying the most relevant results for a particular search query.
What is SEO neutralisation?
Some of us get a bit twitchy around update time - "have we used unethical practices, are we going to get penalised, have we linked to bad neighbourhoods" etc. This leads logically to "have we over-optimised?"
We might think that Google would introduce a new element to the algorithm, that is SEO neutralisation - i.e. penalisation of those who have over-optimised.
However, of course Google already does this, with its myriad of algorithm elements designed to combat spam, including penalising link farms, warning against linking for the purpose of increasing PageRank, introducing its spam report form etc. Over-optimisation is really only a different term for spam, or an unethical site design strategy.
Optimisation and over-optimisation
Optimisation is making sure that your <title> accurately reflects the content of your page, making sure that the header is marked as a header, i.e. <h1>, making sure that your images have alt text describing the images etc. Optimisation is analogous to good site design.
Over-optimisation is putting every possible keyword in your <title> tag, putting seven different keywords on the page each in their own <h1> tag, stuffing keywords into your image alt attributes. Over-optimisation is analogous to trying to kid the search engine that your page is more than it really is.
So let's get back to the basics
Let's take a big step back, forget about whether <h1> tags are still relevant, whether we've used the same anchor text too many times, whether our outbound link to keyword density ratio should be nearer 0.34 or 0.57 - and think as if we were a search engine reading a page that had never been near an SEO consultant.
The googlebot looks at pages. It needs to know what a page is about. It can't read, it can only see words. Certain specific words tell it what the page is about.
On most webpages, the title tag says something pretty accurate about what's on the page. Where <h1> tags are used, almost all the time they're used to highlight a heading. Not many people know about resizing h1 text with a CSS file, so <h1> means big bold text. When people link to a site, they usually use a sensible word or phrase that says something about the site, such as "buy books here" or "Amazon". If the page is about fish then it's pretty likely that the word "fish" will turn up in the body text and there'll be some pictures of fish, hopefully with some alt text saying that they're fish.
However much you worry about the intricacies of SEO, at the end of the day, any search engine has to get its information about the relevance of a webpage from somewhere. The relevance of a page is defined by what's on the page and the links to that page - that's a fact and it's not going to change.
Good website design and good SEO
Good website design is about creating useful, interesting and relevant content that is graphically pleasing, simple to use and interact with.
Good SEO is simply about telling the search engine what the page is about. Most people don't use all the factors that googlebot assigns importance to, so their links might be called "click here", for example, or they don't assign <h1> tags to their headings.
Too much website with not enough SEO leaves a website that underachieves, simply because Google doesn't know what it's about and therefore doesn't know that the content is relevant to what the user's just searched for.
Too little website with too much SEO leaves a website that overachieves, for which Google uses the term 'spam'. If you feel that you've reached a limit as to the amount of ethical SEO you can do then build more website - your ethical SEO will therefore now be more powerful.
So let's have a bit less paranoia and remember the principle - Google needs to know what your page is about to be a meaningful search service, but it doesn't want to be cheated. So tell it in all the ways you can, but don't oversell an inferior product - improve on what you've got by building a better site for your users, and see your ranking and traffic improve with it.