Matt Cutts has released a video on YouTube explaining in great depth how Google determines what a paid link is.
The official definition of a paid link and paid linking is payment made to another website in order to get a link on your own site: From an SEO perspective this is seen as bad practice as you are not naturally acquiring or building the link.
In the video, Cutts addresses other factors, as well as stating the most obvious paid link is one blatantly sold for money - pretty much the definition of a paid link outlined above.
Matt Cutts said this was the most commonly encountered example of a paid link by far. In this instance, one webmaster will sell a link to another webmaster in return for a sum of money.
Aside from this example however, Google's other definitions of a paid link are far less obvious in some instances.
For example, there is a surprise or not criteria. That is to say as a movie or videogame reviewer, it would not be a surprise to have access to the game or movie to review. On the other hand, if a free car or holiday was thrown in, it would be somewhat of a surprise!
On a similar theme, Cutts discussed the intent of audience. Freebies are often given away at conferences, usually just as a thank you or to pique interest for a certain event or product. But if they were given away under the proviso of receiving a link, it would again be considered a paid link.
The two final criteria revolve around a gift vs a loan and any gifts possible monetary value. A loaned item for review obviously suggests the item would be returned, but permanently giving the item away is considered by Google to be more like a paid link.
Finally the gift and its monetary value involves a similar process. Free pens or free trials for software have a lot less value than a £200 gift card for example, so the latter is to be construed as a possible paid link.
In summary, the video has just put more of an official rubber stamp from Cutts on what most would consider as factors of paid linking, but until now had not really received clarification of.
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