edit Aliza Earnshaw on April 7, 2011
edit Tell search engines what a link is for
Anchor text is put to its best use when you choose relevant keywords to link to your destination.
In the example above, the anchor text - "relevant keywords" - is indicated with both an underline and blue text. If you click on the link, you'll be taken to an article that explains how keyword research helps you find the best relevant keywords for your business purpose. The anchor text gives you a good idea of what you can expect to find when you click the link.
edit What Anchor Text Tells Search Engines
Anchor text is even more important to search engines than it is to people. Search engines use links from one web page to another to discover new pages, and they pay attention to the anchor text associated with a link. That anchor text can tell the engines what the page is about....if it's been thoughtfully chosen.
For example, which sentence below do you think will tell search engines what the linked page is about?
edit Using Anchor Text for SEO Within Your Site
Thoughtfully linking between pages on your site is an important way to boost your site's search engine optimization (SEO). When you link from many different pages to one specific page on your site, you're telling search engines that page is important.
You may have a particular page you'd like to see ranking well in search results for a specific keyword or keyword phrase. You can help this happen by linking to that important page from a number of pages on your site, using the keyword phrase as anchor text.
For example, a site selling cosmetics might want to boost its sales of acne care products. If the site has a blog offering helpful hints on skin care and makeup techniques, the people writing the blog posts can occasionally address the issue of acne, using the keywords "acne care" or "acne treatment" to link to the page where acne care products are displayed and sold.
You should not indiscriminately link between all pages on your site, nor use keywords in places where they don't really fit. Common sense should tell you that if everything is important, nothing is important, and search engine algorithms are built to mimic common sense.
Make sure you tell search engines - and the people visiting your site - which pages really do matter by linking to them where it makes sense, using the anchor text that's most appropriate for the linked page and the context.
edit Beware: Too Much Anchor Text Can Backfire on You
Overdoing the anchor text is just as ineffective as keyword stuffing. In both cases, someone is trying to get a web page to rank well for a specific keyword or keyword phrase by using the words way too much - so much that the text reads unnaturally, or completely lacks coherent meaning.
Search engines can tell when a keyword is repeated too often, whether it's used as anchor text or not. Bottom line: Link where it's natural to do so, and use relevant words for your anchor text.
edit What Should I Do About Anchor Text in External Links?
Inbound links from high-authority websites are one of the best indicators that a web page is valuable. And the anchor text those links are built on tell search engines what a web page is about.
That's why people are often tempted to buy links to their site, and why there are so many people selling links. However, Google and sophisticated SEO professionals caution webmasters against buying links. Google and other search engines want all linking to be natural - that is, for every link to reflect someone's judgement that a web page is valuable.
The anchor text should flow naturally from that judgement, too. For example, an owner of a dog care blog would naturally link to a superior flea-control product on text like "flea control," "flea soap," "flea comb" or simply, "kills fleas."
That's in a perfect world. The fact is, many people find it easier and more natural to write "click here" or "read this," and then link on that text, rather than on keywords that are relevant for the page they're linking to.
You can't control who links to you or how they link to you. But you can keep track of inbound links to your site, and communicate with the people who have created those links.
It's a friendly gesture to email the webmaster or owner of a site that has linked to you to say "thank you." At the same time, you can politely ask them to change the anchor text they're using, and to include the keywords that matter most to you.
If a site that links to you is relevant to your site - and it probably is - it's an even nicer gesture to write something about that site, and link to it with relevant anchor text. Bonus points for asking in advance which keywords matter most to them.
edit Don't Buy Inbound Links!
It can't be said too many times: Buying inbound links is a no-no. So is meaningless link exchanging, and other schemes for amassing lots of inbound links very quickly.
Link buying and link exchange schemes undermine the entire premise of the Web: that linking between web pages is a reliable indicator of what pages are about, and which pages are the most valuable.
Google has sophisticated ways of detecting paid links and links resulting from exchange schemes. At best, the links you buy or barter won't help your site's pages rank well in search results. At worst, your pages will be deemed worthless, and banished to the furthest reaches of search results.
Need more convincing? Link buying and link exchanges are explicitly called out as a bad practice in Google's own guidelines:
Bottom line: The best way to get inbound links is by creating great content that people will want to share. You can make sure more people see your great content by promoting it on social networks like Twitter and Facebook.