With regards to the SEO industry, in general, there are two types of penalties: scalability and algorithmic. Scalability is the nature of the search algorithm. In general, a different search engine searches for a number of key words and sub-categories in order to determine what content and ranking is most important to their audience. The algorithms are constantly evolving and have to adapt to changing consumer trends. As such, penalties become more severe and targeted as the algorithm changes.
For a case study to illustrate the above statement, consider a great SEO company in California. Their business model was based on one of the most complex solutions in the SEO industry – an algorithm known as PROLOG, which was based on “secret formulas” and a three dimensional “gist”. As a result, the SEO industry lost a huge amount of revenue, which lead to a large reduction in the number of highly successful companies in this industry. At the same time, many SEOs became “green-mailers”black-mailers” and ran ghostwriters up and down the phone directory to generate new businesses. This impacted all SEOs, because all SEOs needed these businesses, and had invested money and time in developing the algorithms that allowed for profitable indexing. It wasn’t just a case of not enough keyword research, or publishing an article for free – it was a matter of one algorithm changing from being “secret formulas” into “real public API’s.”
This was a common issue with many SEOs, but the case study presented above was very extreme. You see, there was another algorithm in place, which was very different than PROLOG. This one had been in place for years and had, in fact, remained constant over a period of several months. The problem was that a ranking or competitive analysis had identified this algorithm and it was being negatively penalized. So, instead of one company experiencing significant loss, there were two.