=BAD
You own a website, I own a website, I pay $100 to Google who decides when to show my ad on your website and keep $60 for itself.
=GOOD
How do you justify Google’s SEO policy of not allowing paid links.
Yes, and I think OP was trying to point out Google Adsense allows "paid links" to be displayed on the same website: "You own a website, I own a website, I pay $100 to Google who decides when to show my ad on your website and keep $60 for itself."
In other words, if you pay Google (30% more money)[1] to display the links on another website, you are alright. However, if you directly pay the website owners (roughly 30% less money) for them to add a paid link on the same site at the same spot, you are running afoul of Google's rules. So, as a business owner, to be in the good books of Google, you incur 30% extra expenses. I am not trying to criticize Google here (I use multiple Google services), just pointing out how many small business owners see this.
More explanation:
<a class="rhtitle" href="http://www.googleadservices.com/pagead/aclk?longurl" target="_top" title="google.com/Chromecast"><span>Online Content Now on TV</span></a>
The code above is an actual Adsense advertisement (I have removed/changed the code and id everywhere). There is no no-follow anywhere there. So, it appears as if it is alright to insert a link with no no-follow as long as you are paying Google. Correct me if I am wrong.
Click fraud is what makes Tier 2 CPC networks really risky for advertisers even if CPC are much lower than Tier 1 (Adwords, Bing).
Regarding your Adsense example, was there not a mention like "Ads by Google," "Sponsored Links," or the AdChoices icon ? In that case, it makes clear that it's not a natural link.
As long as you seperate ads clearly from the site content and maybe give them a rel="nofollow" attribute, there should never be negative consequences.
Paying someone for low quality content around links to increase search engine rankings lowers the quality of the overall web for everyone.
Google does a lot of questionable stuff and I personally don't like the power they weild over the web. However, in this particular instance, I can't see anything wrong with this policy.
Maybe I'm talking about a product, call it spammy, but I'm all praises about the product. The visitors to my website are actually reading this article, indicating that the article is not boring, badly-written content.
At the end of the article I write the line, "If you want to try out the product head over to http://theproduct.com".
Why does a multi-millionaire company get to decide that my HTML markup is `wrong` if there is no "nofollow" in my HTML?
I know they have the right to decide who gets listed on their search engine and who does not. If that is the case, they should not call their results fair.
They don't "get to decide" anything. It's just that _you_ don't get to decide either. After all there are many others who also want to be listed at the top for a particular query.
Simply, their algorithm works in a particular way. Other tags might also affect the ranking, such as h1 tags, for example. There has to be _some_ mechanism.
Why is this so difficult to understand?
Hence your algorithm requires you to comply to the nofollow rule.
As opposed to having a wildly unsuccessful, incompetent company with six employees deciding everything.
Turns out you have to be a really, really big company to even attempt to maintain such a massive global search platform that is fast and accurate. How else would this be accomplished? By a non-profit with 30 employees? By the UN? I don't see the logical alternative.
You can block Google if you dislike their search engine. Their product is private property, it belongs to Google, it's not a public utility. So they get to decide, as is right, how it works. You could always create your own search engine, like DuckDuckGo, and specify how it works.
You own a website, I own a website. I pay you $100 to show your visitors a link to my website. The link is presented as an organic, non paid link. =BAD
You own a website, I own a website. I pay you $100 to show your visitors a link to my website. The link is presented as a paid link, with a no follow attribute. =GOOD
On a side note, your breakdown of the Ad Revenue using Google as a middleman is wrong. If you pay Google 100$ (via Adwords) to decide to show ad on my site, I will get 68% of that 100$ and Google will get 32%
Adense revenue share: https://support.google.com/adsense/answer/180195?hl=en
The whole concept of "link juice" is no longer useful. Google should identify and count real humans visiting web pages via GA and Chrome and rank search results based on actual website usage, and not on how well they can cheat in SEO.
I would expect an anti-trust case in the coming few years.
We should also mention that Google tells people to "merge" adsense on the website, so it doesn't appear to be an ad, inducing people to think that it's part of the website. Have you ever been on a download website with ads with graphics saying "Download" right next to the button just to make confusion and make you click on them? Yeah, I see plenty of those using adsense.
Buying links in order to 'cheat' your way to the top of Google's search page, thereby skewing the accuracy of their results, isn't fine.
I'd liken it to Ford paying 500,000 people to drive a Ford car and then claiming to be the #1 best selling car in the country. If they did that publicly it'd be ok (and compilers of car sales listings would ignore them). If they did it secretly then it really wouldn't. Tagging a link with 'nofollow' essentially makes it public that the link isn't trying to cheat the listings.
Also, Google only keeps 32% of the ad revenue not 60%: https://support.google.com/adsense/answer/180195?hl=en
Google is completely free to have their algorithm work however they want to provide the best possible results.
(Personally I think using paid links as a signal for good websites is unlikely to improve results. You may not agree with this, but that is separate to the issue as to if they should be free to implement their algorithm however they like)
In other words, if you pay Google (30% more money) to display the links on another website, you are alright. However, if you directly pay the website owners (roughly 30% less money) for them to add a paid link on the same site at the same spot, you are running afoul of Google's rules. So, as a business owner, to be in the good books of Google, you incur 30% extra expenses.
I am not trying to criticize Google here (I use multiple Google services), just pointing out how many small business owners see this.
On a sidenote, my post was downvoted by someone even though it was on-topic. I disagree with you, but have upvoted so we can discuss this rationally.
[1] http://www.mattcutts.com/blog/why-did-my-pagerank-go-down/
In the real world, you have to deal with lots of rules and regulations regarding advertising (which is what paid links are) and companies with significant market power.
The real world is not some libertarian wet dream.
You are not allowed to pay to increase your ranking. You can buy ads on Google or another site and that's ok as long as they are marked as ads.
Does every advertisement necessarily carry a 'Advert' banner?
If you're asking how does Google know if a link was paid? It has some algorithmic ways, and it also relies on paid link reports from competing webmasters.