ColourOfSpring - 8:43 am on May 19, 2013 (gmt 0)
Cutts says to just nofollow links you're going to make money from, and even in a lot of those cases Google can tell and will just treat it as nofollow on its own. So I only no-follow affiliate links.
The problem is that many webmasters are genuinely linking to external pages - not for payment, but because they (shock!) think the pages they're linking to are of interest to his/her visitors. The original reason why people used to link out - because they wanted to. Think of a blog entry where you're citing a number of other external pages to back up your blog entry's point. Technically, you should not bother with nofollow if you trust these links, and frankly 95% of the time you're going to trust the pages you actually WANT to link to. However, a lot of "sensible" webmasters are nofollowing everything because if you looked at the blog entry with cynical eyes, you could allege that those links could be paid-for links. What if the sites you link to DID get caught buying links from OTHER sites? Then Google's algo might assume they also bought links from your site (when they didn't, you linked freely and simply because you wanted to) - WHAM - you're hit with a penalty. False positive? Join the mountain of sites who've been hit with a false positive penalty. And so webmasters essentially nofollow everything.