This is part of a sequel: Link Farmer's 101. So don't expect everything in one post :) I've pointed out some resources and concepts for you to ponder upon until my next post.
Link Farms (aka Blog Farms) are sites designed only to get other sites in the index. Others have slightly different seo theories ;) about them but the point is not interlinking or relying with your business on their content but using them to index the rest of your money sites. These 'farm' sites are in the white-gray hat section and should have no other purpose then getting blackhat sites indexed by the search engines. Link Farms are usually known as Blog Farms as 99% of Blackhats use these kind of Wordpress Blogs And Tools! (xcept me)!
Link Farms should have some slightly valuable content which will have to gain some search engine respect in order to pass it to the money sites to follow. These sites are like wine. Aging them only gets them better. I will try to explain you in this rather short tutorial how you should not do link farming.
Disclaimer: Do keep in mind that Link Farms are kamikaze sites. Sooner or later they go down but it all depends on management.
There's different kind of markets out there and there are some really high competition ones where you won't get links with no affiliate system and such techniques. Let's say you own an online pharmacy. This is the classic example. Except reciprocals and article posting … what other legit links can you get? Do you think people will mention your OP on forums or on their blogs except if they will flame your site? I don't think so.
I'm pretty sure that some fanataic link baiters will come and charge you 1,000 bucks or so (Lyndon's site is blacklisted by Google - muhahaha aka evil laughter) and tell me how they can create linkbait for a pharmacy. No sheet? There would be some methods of linkbaiting for such a site with some funny cartoons or videos but eventually you'll do the old content swap trick or cloak it … hence not legit.
So, sooner or later you will realize that the only good source for links (except those already mentioned) is yourself. But this is not nice. It means you throw worthless junk into the index, a lot of it just to rank you higher. And no search engine Diggs that. So you just gotta fly under the radar. And I'll try to guide you through.
… or Link Farming Suicidal in a few easy steps.
This is wrong because it's free! You don't invest anything to complete these steps and search engines can tell. What to expect from a website that spends no money? Real Business! I don't think so.
#1 Problem is using Blogs. Blogs can be quickly picked out of the crowd. They have features that write blogs all over them. So it's easy for search engines to locate the blog farms and quickly take it all out. They don't need to ban it as it looks good in their index they just supplemental it. And most major blog hosting services are known and monitored.
#2 Problem is Interlinking. Usually free blog services run on few IPs (few C Classes) and you won't believe the pretty geometric shapes interlinking blogs create as described in Know Your Neighbours (a must read pg.7).
#3 Problem is Rate Of Posting. Many posts will trigger filters. Incoherent posting intervals also trigger filters.
#4 Problem is Quality Of Backlinks. Most link farmers fall for the heavy link spamming or pathetic blog and ping. If you don't build a decent link profile for your link farms they are worthless and pointless.
#5 Problem is Quality Of Outgoing Links. Link Farmers add many links to their few domains in their blogs. You need to add 1 bad link to every 4 good links. So don't link out only to your pages. Link to authorities more then your pages trying not to use too relevant anchor texts for the authorities. This is done to keep your link's value to authorities to the lowest.
#6 Problem is Post Content. Usually posts are scraped from RSS Feeds. I don't know how low Google goes in duplicate spam detection but if the only paragraph of text you have is taken from a Blog Feed then you're out.
#7 Problem is Reader Count. If after a while of blogging you have no/few readers (as Google owns Feedburner … guess Why?) what will Google think of your blog?
#X Problem is Blog Posting Redundancy. WordPress as well as all other search engines may get 10 types of links pointing to the same page. And links you wanted to exist in just on Page (URL) will be found on many pages in your blog and mess up everything big times.
I'm working on a larger post about this. It'll be ready quite soon but I wanted to spark your interest with this one :)
PS: Papa Rage pointed out in the comments two more resources worth reading related to this first post: Detecting Spam Through Content Analysis and Connecting Spammers To Advertisers. I've read these papers and was saving them for a future content-related post but you could start reading now and know the subject when I'll cover it. Remeber filetype:pdf searches bring out a lot of valuable content ;)