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How can directory links help in improving my search engine rankings?

No one can be really sure of what exactly it takes to get on top of the search engine results. There are a multitude of factors involved.  However, it has been established for a fact that all search engines value the importance of links.

This is quoted from Google’s Guidelines for Webmasters:

When your site is ready: Have other relevant sites link to yours.

Source:
http://www.google.com/support/webmasters/bin/answer.py?answer=35769

This is quoted from Yahoo’s guidelines

Correspond with webmasters and other content providers and build rich linkages between related pages.

Source:
http://help.yahoo.com/help/us/ysearch/ranking/ranking-02.html

Since it’s clear that links are important, the question is ‘do directory links count as well?’ Well, this is to quote another pointer from Google’s Guidelines for Webmasters:

Submit your site to relevant directories such as the Open Directory Project and Yahoo!, as well as to other industry-specific expert sites.

Source:
http://www.google.com/support/webmasters/bin/answer.py?answer=35769

Google’s guidelines state that you should submit your site to relevant directories. What makes a directory relevant to your site? Well, there are a number of general directories out there that include sites from all categories. So would these directories be counted as relevant directories? Well, they would to a certain extent, if there was an available category related in some way to your site’s theme. Placing your link in a relevant category in a general web directory will help search engines categorize the main theme of your site and the link would count, to a certain extent, in influencing your search engine rankings.

The basic premise is that while submitting your site to general web directories will not harm your site in any way, the directory links will on the contrary help build your site’s link popularity which can only be more helpful than harmful in your search engine ranking efforts.

Given the fact that most general web directories are free to submit to and there being quite a few directory submission services like ours that will help save you the time in submitting your site, there isn’t any real reason for you not to have your site submit

Everything you need to know about Directory Submissions