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Whether this is still the case with Googles latest algo. is not so clear. My personal experience is that pages with fewer incoming links do better.
Assuming a funeral director has a back link with a wedding party organiser, it has a low relevance.
However, a back link with a stone mason as a higher relevance factor.
Industry related, non-conflicting links are good.
I think people credit Google with a little bit too much intelligence sometimes. Remember they don't even give any relevance to plurals when a singular search term is given.
The context of external links is genuinely now more important. I'm pretty sure that NewRank and LocalRank algorithms are being applied to search results (as of the last couple of updates). Read Claus' amazing analytical summary of the patent and see what you can derive from it. My own research leaves little room for doubt.
I have a PR3 site which is ranking #1 in the world for a highly searched term (more than 200 requests every 24 hours, and with several hundred thousand competing sites)
My competitors for this term are chasing PageRank, whereas I have optimized my site giving more consideration to LocalRank and NewRank (much trickier, but worth it). My site is PR3, the other sites in the top 30 are all at least PR5, and some are PR6 and PR7.
Context is king :)
You could be right but I'd be surprised if they implemented the algo described as I think it would be a little short sighted and would leave spammers in an even stronger position.
Google would immediately benefit by eliminating some spam but that would only be until the spammers set up on different ip addresses. They could then outperform high PR sites which get their links from pages which are of a similar theme (but not exact match of the phrase) or from pages of sites which are an exact match of theme but which link from a page that does not perform well for that theme (e.g. a links page).
I'd be interested in any examples you could point me to though.