There are two types of search engine optimisation that have a real impact when it comes to your position within the search engines for a given search term/keywords. The amount of effort spent on each type of optimisation is dependent on the keywords that you are targeting and the amount of competition around them. As a general rule keywords with less competition require different optimisation tactics than keywords with high competition.
Which tactic to use?
Low Competition - If you are targeting long keyword phrases with little competition or a specific product within a specific geographical location then the best tactic would be on page optimisation, ensuring your target page for that product is clear in its message and fully optimised for the keyword phrase.
High Competition - For more generalist keywords or if you have a lot of competition (such as all the web design companies targeting the term 'web design') then inbound links are your best bet at making an impact on your search engine position. It is important to ensure your page is fully optimised for the keywords but the biggest factor when it comes to you or your competitors is the quality of inbound links.
Whats the difference?
Well in a nut shell, your on site optimisation is telling the search engines such as Google that you are targeting this specific product or service via the keywords but the next step is to prove that your site will add value and information to the user.
How do the quality of inbound links work?
Inbound links are a lot like referrals, if the referral is from a trusted source then you would be more inclined to use the referral. If the referral is from someone you don't know then would you really trust it? Hence the referral would have less weight behind it. The search engines and Google in particular use exactly the same philosophy to determine how good an inbound link is and whether your site is trustworthy. It is often believed that one genuine link for a site like bbc.co.uk is better than 100 links from other less known/visited sites.
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