If you have a web site that is getting much traffic, you will sooner or later be approached by someone who will want to link to your website and have a link from yours to theirs. It has been widely reported that this will help you get better positioning in search engines. This is and is not true.
While having someone link to your site might drive traffic if they visit your site from a link on that site, having links that are not relevant to the content on the linked sites on your site may actually harm your ranking on the search engines.
Search engine positionint on sites like Google are based on a point system. This system adds or subtracts points from you for various reasons. For example it used to be that if you hid keywords on your page repeated over and over, you moved up in the search engines on a relevance basis. This practice over time became known as a form of “spamming the search engines”. When you have hidden text on your page (hidden text is when you make the text the same color as the background so it is invisible to the user) you lose points in the rankings and move down the list.
Search engines have been made very intelligent by their creators. They do things like compare the keywords to content, look for content changes, and compare the content of site links contained on the site to the sites they link to. If the content is relevant to the site chances are it helps your site rating. If the links are not related, it can hurt your ranking.
It seems then that to have effective linking we should only link to sites that contain complimentary content. If I have a business site, my site should link to other sites with business content. To link my site to a beauty salon site would probably do very little good for me as far as traffic is concerned and would very likely be detrimental to my site ranking.
Now I do not want to deter you from having advertising on your site. Ads are a different animal. Links usually are all grouped together on a page of suggested links while ads are usually mixed in with the content and take the form of banners. These types of ads will not hurt ranking. Most profit driven web sites have some form of ads on their site and the search engines are made to take these ads into consideration.
To sum it all up, links are good only to sites that are relevant to your content. If someone asks you to do a link exchange that is not relevant to your site, thank them for the offer and decline politely. If their content is related to yours be sure to make it happen if you have a way to do it.
As a web master who enjoys a top 5 listing on most search engines on the internet I can say that when it comes to learning how the search engines work it is better to have linked and lost than to have never linked at all. 😉