Not enough time for the usual in-depth rant (lucky for you)… but jumping off Danny’s excellent overview, I will assume that Google found within itself to ratchet down the value of Squidoo pages in the grand scheme of things.
These incidents are unfortunate in the sense that anytime an entire publishing platform (like, say, “all blogger blogs”) gets treated with undue suspicion, the quality of individual pages could be unfairly downgraded. We really don’t know if they tackle such matters with algo tweaks, penalties, or some combination of the same, but if it’s largely through penalties or special treatment (in a negative or positive sense) for certain classes or types of site, it leads one to imagine how many “special exceptions” get built into the overall ranking formula.
Anyway, when search engines try to look at this stuff, I think three principles might be at work.
1. Accuracy. If a certain kind of network of sites or pages is getting undue benefit due to the parent site’s high standing or pagerank, or due to the interlinking that is improving authority of pages within the network, such that there’s an incentive to join the network and create a large number of pages sending traffic to client and affiliate sites until this loophole is closed down (see: blog spam, guest books, link farms….)… then the SE must figure out a way to give the right amount of link juice or authority to pages within the network. How to not throw out the baby with the bathwater? I’d love to hear a detailed explanation of that process! I doubt it’s possible.
2. Abuse. Related to the first point. Google sees a common source of abuse, it’s just easier to clamp down on it and downgrade the whole lot. Selective downgrading requires a lot more work, although I’m sure there are ways to handle this (sandboxing of individual pages, or whatever).
3. The bigger picture of the known high-traffic universe and how a top SE has to know that universe and constantly evaluate which of the top sources of SE traffic are getting “too much” of the search referral pie. Tall poppies will be scrutinized, and it’s this area that seems particularly tough to get a grasp on for those who may still think the Google world is 100% algorithmic. Related: SERP Staples: Here Today, Gone Tomorrow
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