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For ranking it's a matter of a lot of different optimization criteria. With subdomains you do have to be careful, and it can make a big difference what's there in the root domain, as well as how the site's internal linking is done.
djgreg, are you talking about subdomain.example.com (like that) or www.example.com/subdomain/ like at an ISP or a free web page provider? And what relation would the subdomain have to what's in the root? That can make a difference with directory listings, particularly ODP.
It'll be easier to give you the right answer if we know what kind of setup you're using. You could get the wrong answer if you're talking apples and we're talking oranges.
An ODP listing can help with rankings in many ways. If you submit www.mysite.com/mysubdomian/ to ODP and www.mysite.com is not already in ODP the subdomain is highly unlikely to be accepted.
Again, we need to know what the setup is. clothing.machinetools.com is not good. dresses.clothingsite.com is fine. yoursubdomain.affiliatefolks.com - not good.
As Chris said, the subdomains are treated as separate sites. Therefore, links between them are not internal links - they'd be outbound and/or reciprocal. Even though they're considered separate, they're still part of a whole, even to a casual observer. It's a touchy area, some love them and some stay away, preferring to avoid complications. They're workable and successful for some, but what needs to be watched for is duplicate content replicated with only minor changes, duplicated filenames to exess and/or excessive cross-linking.
We have a member with sites in a niche sector/theme with crosslinking perfectly logical and legitimate. There are distinct parallels by topic and location is what varies. He remorsefully reported running into penalties months back. I have no idea if the sites ever recovered. They were separate, not subdomains if I remember correctly, but there's a parallel because of the topic segmentation .
It does take judicious planning when crosslinking between sites - and since the subs are treated as separate, additional factors have to be considered.
Added:
I thought about doing: keyword1.travelexample.com
on this page i wanted to add specific content for keyword1 for example only hotels or only flights.
djgreg, that is not a page done that way - that is putting a page on another site.
keyword1.travelexample.com = page on another site - there's a long thread in the Google forum about this now related to mod_rewrite & robots.txt
www.travelexample.com/keyword1/index.html
That is a page on the same site. Linking between that and other pages on the site is internal linking. However, with the other way, I can't see how it's internal linking, if it's a separate site. It's linking between sites.
That opens the door to two questions -
1. Is there a difference in the value of internal vs external links for scoring? How about Page Rank passed on to pages, among the other factors - like link text. Is that worth more from another site or from within the same site?
2. Are the parameters of safety for avoiding excessive cross-linking different between subdomain and same-site internal links? I would guess so since one is so much easier to abuse than the other.
From what I've read in other posts - the question for deciding can well be whether it's enough of a separate topic to warrant splitting to a subdomain or domain. But the feasibility does have to take several factors into consideration.
Links between different domains are counted the same (to at least 89% accuracy or 0.03 of a notch on the Toolbar). My test is based on the domain being on another IP in the same class C range (so links outside of the class C may be btter for PR but I doubt it).
> ...among the other factors - like link text. Is that worth more from another site or from within the same site?
I don't know about the link text boost (yet). If there is a boost to link text from another domain (as is suggested by some people), then it may or may not apply to subdomains. It would be nice to find out.
> 2. Are the parameters of safety for avoiding excessive cross-linking different between subdomain and same-site internal links? I would guess so since one is so much easier to abuse than the other.
Domains are so cheap that I don't think it would need to come into it. On the other hand, if a site is subject to human review then subdomain farming would be easier to spot than domain farming.