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When Paypal's official Web site no longer ranked #1 in Google on a search for "paypal," it was obvious that Google had become more aggressive in penalizing sites with "unnatural" backlink anchor text. Although the high-profile Paypal example has since been rectified, thousands of webmasters are suffering the consequences of not ranking for even their official company name, let alone their top keywords. It is important for search engine optimizers to understand both how anchor text penalties are being applied and how LSI ensures that anchor text variance will not dilute a link popularity building campaign.
Anchor Text Penalties

In the past year, webmasters have found that the aggressive link popularity building tactics that work well in search engines such as Yahoo! do not fare well in Google. Google has implemented several features to filter out sites that appear to have an unnatural backlink structure; one of these features seems to be specifically penalizing sites with unnatural backlink anchor text.
It has always been an SEO best practice to use descriptive anchor text in both external and internal links. But search engine optimizers have often focused on a single keyword phrase when choosing anchor text, especially if their topic has one keyword that receives vastly more traffic than any secondary keywords. Since good links are hard to come by, they do not want to "waste" any of those backlinks with anchor text that does not contain their main keyword.
The drawback to this approach is that it can be interpreted as unnatural by a search engine. A site with organic, passively-obtained backlinks will have a wide variety of backlink anchor text variations such as: "official site title," "keyword," "keyword synonym," "www.thesite.com" and even "click here." If the vast majority of a site's backlink anchor text is simply "keyword," it is obvious to an algorithm that the link popularity was not obtained organically.
Latent Semantic Indexing (LSI) Basics

Let's now touch upon the myth I mentioned before, that if a backlink's anchor text does not contain your Web site's main keyword, its power is wasted. The concept of latent semantic indexing, which may be more fully implemented by major search engines in the near future, will prove this myth to be false.
Latent semantic indexing can help overcome the "vocabulary mismatch" problem when a human uses a search engine. Individual words do not always provide reliable evidence about the conceptual meaning of a document. For instance, a Web page that is highly relevant to the term "laptop" may never use the term "notebook," however it is clear to a human being that "notebook" is often used as a synonym for "laptop."
While it is beyond the scope of this article to discuss the mathematics behind LSI, its implications for search algorithms are simple. LSI can use statistical techniques to create a semantic analysis for any given query topic. In practice, this means that a page can be considered relevant for a particular keyword, even if it does not contain that keyword. For instance, a page that is considered relevant for "laptop" can also be considered relevant for "notebook" even if it does not contain the word "notebook," if LSI determines that "notebook" is semantically related to "laptop."
The principle can be applied to backlinks as well. Backlinks with anchor text that do not contain your Web site's main keyword, but instead contain a synonym or related word, may still be giving your site a bonus for the main keyword.
Link Popularity Building Best Practice: Vary Your Anchor Text

The recent increase in penalties given to sites with unnatural backlink anchor text, along with the possible implementation of LSI, should give webmasters motivation to vary their backlink anchor text heavily. Rather than seeking to only obtain links using their main keyword, webmasters should include synonyms, variations and related words. Certainly no single keyword variation should be used the majority of the time; rather, the text of all links should vary widely, just as they would if the links were obtained passively. This will ensure a site's improvement in the SERPs, without drawing a penalty flag.