Cygnus, over at SEOChat, posted a thread back in July that has quickly become one of the most popular and visited threads of the summer. Delisted Sites? poses questions about many recently dropped sites at Google from a variety of sources. I was lucky enough to have some private conversations with Cygnus to take a look at some of the sites, and while I'm not free to share them, I can say with some degree of certainty that there is great evidence to support the idea that if you link to "bad sites" and "bad neighborhoods", you could very well face your site being de-listed.
From my experience looking at the sites, there can be little doubt that the ban has been triggered by a scan of the website linking into and out of the site and the quality of the sites and links on both sides. I would urge SEOs, especially those in particularly commerical or competitive spaces to be very wary of how they build links on their sites and where they generate the sources of their links. Low quality coming in and going out appears to be something that can earn a quick reprimand form Google (despite being relatively safer at Yahoo! & MSN) and my recommendation, therefore, is to first earn links naturally, with content - use press releases, directory listings, blogs (not comment spam, but blog mentions in the posts) and creativity before turning to automated systems or link advertising.
This is one of the first major upgrades I've seen in Google's ability to punish low quality links and sites (and high quality sites with low quality links). It could very well be that further crackdowns are around the corner.
It's certainly an amazing thing to observe, though. It appears to be a full algorithmic banning, which means a human being doesn't even look to see if these are important or valuable sites being removed - they're just getting taken down because of who links to them and who they link to - extraordinary.
And of course it keeps getting worse; two more domains from the same client were delisted (a former PR5 and a former PR6).
We are in the process of running the spider again to see how many "new" delisted sites we need to drop links to.
Do they not understand this is a terrible way to take care of the problem? The collateral might be greater than the target.
Perhaps I should jump in and explain Michael. The industry sites affected are of a client of mine operating in the payday loan industry; most of their incoming links were on theme, but were primarily derived through the long-loved practice of 1-to-1 and 3-way linking (most of which were on the typical industry resource page with several other on-theme links).
Additionally, the sites themselves were high quality (no duplicated content, no cross-linking), but some of the outgoing links weren't the best choices...linking out to other sites which had resource sections slightly more accepting than our own resulted in being delisted.
Then what? I contacted Google, letting them know that a few sites that were obeying the rules got the axe (at this point, the staff was only checking for bad neighborhoods on an eye-ball basis). After a bit of back and forth, I was repeatedly told to look at the webmaster guidelines; coupled with some posts in that referenced thread on the heightened consequences of linking to bad neighborhoods, the company began to run a spider to determine which of the outgoing links were not indexed in Google -- 100 links later I submitted again....again, I was told to look at the guidelines. On a hunch, based on a joke of Google eventually delisting the Internet, I had the client run the spider again -- 38 more sites had become delisted.
I'm still working with Google to determine whether the sites now meet quality standards, and have been given the "past onto the engineers" message we delisted SEO managers long for; on a continual basis rolling forward, regular spidering will take place to eliminate sites as they are delisted, with a higher emphasis placed on "natural" links.
As a personal thought, this may not have been the best way to go about instituting such a filter, especially when dealing with hypercompetitive industries like loans. One can either play by all the rules, and no longer rank (good luck getting THAT many "natural" links) or go blackhat.
Michael - You're right. I need to provide better specificity. I will see what I can manage given that privacy is of great concern.
What I can say is that the sites concerned are in the sector of personal lending, and that the method used to gain link popularity is through a bulk link gain system. Primarily the incoming links are sourced from reciprocal link pages and other pages that link to a wide variety of sites as part of linking "schemes".
Those who use these bulk methods should be aware that greater scrutiny is on the horizon.