Google’s business model depends on two things. Firstly, selling links. 99% of Google’s revenue is from their AdWords and AdSense advertising products.
Secondly, using monopoly power to protect their position. Google provide strong disincentives to third parties buying or selling links elsewhere. Get caught, and Google will penalize your site, or ban you altogether (eg, John Chow).
The truth about Google’s stance on paid links is:
- Google’s algorithm depends on link popularity to determine rankings
- Paid links work
- Ergo paid links erode Google’s monopoly power.
- Selling links renders AdSense redundant, except for splogs, arbitrage or hobby sites
- Buying links renders AdWords redundant, since paid links often offer less variable costs than AdWords’ pay-per-click pricing model (NB. organic traffic often converts better than PPC traffic, too)
Google’s fatwa against paid links is corporate protectionism. Google’s failure has been to not diversify revenue sources and so now relying on monopoly power to strongarm website owners to playing by their rules.