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Their reasoning involved multiple landing pages. They argued that a text link to "blue widgets" might get a higher percentage than a "red widgets" text link and this data will help aid them in ad optimization. Offhand I don't see how the same thing can't be accomplished with a simple name / value pair.
I of course want my site to drive business to those that advertise with me. But I don't want it used mostly for improving page ranking as I'm concerned it might adversely affect my PR. This is my understanding of the purpose behind rel=nofollow.
I'm something of a Newbie at these issues. Am I wrongly putting off a legitimate advertiser?
Up to you if you want to give it to them.
I'm not sure what makes you think you are getting scammed.
If you are looking at your advertisers as "the enemy" you don't need to be selling advertising in the first place.
Thanks martinibuster for the opinion and link.
Is your PR worth $$$? If so, how are you monetizing it? Implied in your original post is that "they" sell and "you" don't.
Who you link to sends a signal of what that page is about. If it's related to what you are doing then no harm to your ranking.
Thanks for all the comments, they are highly appreciated!
Step back for some perspective. If they're not competitors, it fundamentally can't do any harm.
On the other hand will Google pick up a paid link and penalize? That is a risk not worth running, is it standard practice to no-follow explicit advertising?