Advice for Business whose Competitors are Black-Hat
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My advice would be to understand that to be successful with SEO you need to look at the long-term. Your competitors may be 'winning' in the SERPs because of blackhat techniques now, but it is not a sustainable strategy and you should feel confident that they will get Google Slapped in the near term.
Concentrate on the long-term success of the website, identify the blackhat competitors, and watch their fluctuation and eventual departure from the SERPs closely.
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There is a lot that goes into ranking a site and generally the more authoritative the site, the more it can get away with. A few backlinks like the one you posted wouldn't even hurt a normal site. On top of that, you don't know if these companies have these links disavowed in Webmaster Tools. If you have SEMrush, check their rankings over time and estimated site traffic for anything suspicious. You can also check Ahrefs for anything unnatural in their incoming links graph such as spikes. Even with this you're only looking at a portion of the data and missing many link types that most backlink checkers don't show such as NAP listings or social/web 2.0 links which rarely show up in OSE or Ahrefs.
Look into them but don't dwell on what a few are doing. If you want a better picture, look at some of the sites from other major cities as well and look at what everyone in your industry is doing to find ideas how to improve, without wasting energy complaining that someone is getting away with something.
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Winning, even if temporarily, is sometimes a very big money proposition. If the money is there, I would start a second site. Run the main site the best way you know how. Run the second site as a churn & burn if the money makes it worth it. It really depends on the outcome you're looking for.
Also, if you want to really rank it, use this as a test opportunity. Test a few different mini-sites in the niche. See what works & what doesn't. Find a good way to rank & push with that WHILE you build the main site properly for long-term ranking.
At the worst, the site never really ranks. At best, you have both a temporary AND long term win in the queue.
(Someone will inevitably mention that Google may dislike this theory of mine so you may want to build the two sites with separate "everything" just in case - but I think you'll be fine. I just want to offer something outside the box. Whatever you do, discuss with the client first & give them a few options.)
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There is no white hat or black hat. SEO is like the stock market - there are only varying levels of risk tolerance.
If your competitors are doing well with risky tactics, why not try some of those risky tactics yourselves? Obviously Google isn't looking at your niche too hard if multiple competitors are succeeding like this.
If you wait and hope Google will punish them, you're wasting time. Be proactive and try to beat them at their own game, or just do the white hat thing of creating content and hoping that one day boosts your rankings.
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Before doing something like this, the OP would want to have a real honest talk with their client, and make sure that their client is comfortable with doing that and the possible ramifications.
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Agreed - Trying to capitalize on the blackhat techniques, regardless of opportunity, is still short-term thought. Concentrate on the long-term.
If you've identified the exact blackhat technique being used and that technique has been used successfully for over 1 year, then you may want to bring this type of conversation up to the client.
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I like it Matt! When you say seperate everything I know you mean, the domain owner is different, the hosting account is different. What else would you do? Not put it in analytics, but what is your or the communities takes on the fact that maybe google recognizes these coming from same IP address etc? Anything I am missing?
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The more you keep separate the better although unless you're doing things REALLY poor quality, it should be ok to at least fight for the top spots. Good luck with it!