Speaking to Mike McDonald, Matt made the following comments on paid text links and paid blog posts:
You want my links for traffic.. totally fine..just don't make it so they affect search engines..so that's why we say use nofollow..or use a redirect which is through robots.txtNow while some bloggers do write disclaimers [like "This is a paid review" or "Sponsored Links"], Matt has suggested using a machine readable disclosure like a rel=nofollow link.
When Googlebots reads the attribute (rel="nofollow") on hyperlinks, the external linking website won't receive any credit in Google search results or the PageRank.
For instance, the consider the following two cases:
Case A: <a href="www.buy-viagra.com/">Cheap Viagra</a>
Case B: <a href="www.free-viagra.com/" rel="nofollow">Free Viagra</a>
If I have an external link like Case A on my webpage, I am directly helping that [spam] site in Google search rankings [something which Google hates and may penalize my site itself for this practice]
In Case B, search engines will completely ignore the external link [that's the way Google wants you to write advertised links]
Matt shared these views during an interview with WebProNews at the Pubcon conference in Las Vegas. Download full Matt Cutts interview in either MOV or WMV format.
Reminds me of a slightly old article by Amit Varma where he refers to "paid blogging" as deception - "Readers will invariably value the honest blogger more than the plug maestro, and soon the plug maestro will lose his readers."
Interestingly, both Google and Text-Link-Ads are among the main sponsors of the WebmasterWorld Pubcon 2006.