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I think Google is crossing a line when they devalue advertisements on websites. Like I said in another thread, it would be like TV guide not listing a channel because they run commercials on the station.
When Google starts putting things like this into their algo, they are essentially penalizing the sites who are willing to advertise as well as the integrity of their SERPs. I feel as though Google is more concerned with stopping SEOs than their SERPs.
Why is it so bad to buy a text link? If I sell Blue Widgets and I want to advertise with a link to my site that says Blue Widgets, is that a bad thing? Does my site probably pertain to blue widgets? Of course. The fact I'm willing to pay to put my releavant site up there should be worth more.
Google needs to really look at their SERPs from a user standpoint. If I'm Joe User and want a blue widget, I want my results to show sites with blue widgets. I don't want some fluff coming up because all the sites who advertise their blue widgets won't come up.
Google should remember that their responsibility should be to the user, not to determine what is right and wrong on the Internet. When they start dictating webmasters paying for links or not, they are stepping on the toes of the sites they make money on for indexing. It is none of Google's business where my site advertises and where it doesn't. Their business is to provide good results.
With that said, I think Google is walking on thin ice. Search engine competition will get fierce in the coming years with MSN and others coming to the front. The winner will be the search engine who provides the best results. Right now, Google doesn't do that by a long shot. They seem far too concerned with getting rid of SEO's (which should be a search engines best friend) and dictating how webmasters should run their sites.
A good search engine should be one that stands in the corner and just puts up the most releavant searches. Not one who plays God.
Yet your example shows exactly the opposite. The link to a Zippy page is a genuine, accurate vote.
"The clearly superior methodology is pure on-page evaluation."
Pure on-page evaluation would be close to worthless. Bots can not determine the relative value of "Neil Armstrong landed on the moon" versus "moon the landed on Neil Armstrong."
Any search engine that doesn't rely heavily on off page factors would be good for not much. Search engines must seek to determine value, not read random text.
Linking (and the text of it) as voting is still basically brilliant. The problem merely lies in determining genuine votes as opposed to ballot stuffing. (And yes, it is a major problem.)