My website keeps getting hit every other month. What should I do?
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I tried paid search but in the web hosting niche, you can forget about it on Adwords. You ain't gonna get quality traffic below $10 a click.
I did get some nice traffic from Bing / Yahoo but now the prices have went up a lot since the competition increased so I had to stop the campaigns.
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But my question is: why does it keeps getting hit over and over even though I'm improving the site more than ever?
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Because it sounds like you were hit by every penalty Google has come out with. Contrary to popular belief, there is no threshold. You probably won't find the bottleneck and come bouncing back to the top as you once were... it doesn't work that way... unless you're a big brand like WPMU.org, JC Penny, Overstock etc. and get massive publicity over this.
After any penalty, algorithmic or manual, you're put on sort of a 'probationary' period. You'll get the tools you need to survive, but don't expect to get a decent job after being locked up... or in this case, bring in the big bucks again.
At some point a guru is going to come on this thread and tell you "don't loose hope" "you can come back if you make quality content and links!!"
I'm here to tell you to consider cutting your losses. Google isn't playing around anymore.
Try out AdWords again. Be creative with it. Mess around with the display network and exact match long-tail keywords.
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At some point, I thought I could've removed too many links too quickly. Could it be part of the problem?
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Not sure. Did you ever file a reconsideration request after getting the unnatural link warning?
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No, as I haven't compensated for all the bad links yet.
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Well that's your problem. If you can't get them all taken down use the Disavow tool. Show Google that you tried your hardest to get them taken down manually though.
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One thing I forgot to mention is that the pages that are no longer ranking either have no backlinks or just a handful of links. That's why it makes me think that I can save this site.
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One of my sites with 200+ pages of unique quality content had 12 backlinks on all pages combined and it got slapped by Penguin. If they don't manually recover the site your chances of recovery are slim.
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What I mean is that these pages rank in pages 2 and 3 for their main keyword without backlinks.