Link Networks: How They Can Kill Your SEO
In SEO, links between websites play a crucial role. It's reckoned that links from other sites to yours account for about 50% of your ranking in search engines. (The other 50% is comprised of many other factors). Links signal trust.
So maybe it's natural to assume that building links from other sites to yours is a good SEO strategy. In fact, why not buy up a load of domain names, build cheap websites on each one and link them all to your website?
Well, 2005 called and it wants its SEO techniques back. Unfortunately, today, search doesn't work like that.
Domain authority
Firstly inbound links (we call these backlinks) come with a quality score. High quality, trusted websites such as well-known newspapers and magazine sites have a very high trust rating. This is built up over years by their output of very high quality content that engages users and is widely linked to and shared on social media.
SEOs measure the trust levels of a website using a measure called Domain Authority (DA). Low quality websites tend to have a low Domain Authority. So links from these sites carry little SEO benefit.
Worse still, when a network of websites are all linked together, search engines will view this as a manipulation of the backlink system, and apply a negative penalty to the participating websites.
Link networks
What are link networks and how do you know if your website is in one? There are several types of link network.
1. Reciprocal links
Firstly, a network can consist of as few as two sites linking to each other. This most straightforward of link network types is called reciprocal linking.
There's no harm in it providing it has a benefit for the end user. If the two websites are under the control of the same webmaster, or are closely associated, then this type of linking is unlikely to be rewarded with any SEO juice.
On the other hand, if there's a significant benefit to users - if site B is really, really useful to users of Site A (and vice versa) - then go for it!
2. Link hubs
The second type of network is perhaps best described as a hub. One website sits in the centre, and links out to many others.
This is commonly seen when a central site under the control of a webmaster wants to promote its association with many other sites.
For example, a web design agency might want to promote the sites it has designed, or a business might want to show off its clients.
Again there's little harm in it providing there is a benefit to the end user. But if it's done for the purposes of SEO, it could land you with a slap from Google.
Either way it's unlikely to gain either the central site or the satellite sites any SEO benefit if they are all closely associated.
3. Link wheels
To get around a Google slap for creating a link hub, webmasters got oh-so-clever and began to create long daisy-chains of linked sites. This technique creates many one-way links, which are in general more valuable than two-way links. 
For example, if there are 6 websites, all linking to each directly, or in a "wheel"-like configuration where site A links to B, site B links to site C, etc. etc. this is also considered a link wheel.
The problem is that search engines are very good at detecting link wheels because it's a black-hat SEO technique that they have been wise to for a long time.
Again, the rule is that unless there is a human purpose to creating a link wheel, don't do it.
Why are link networks bad?
Simply because they are a manipulation of the backlink system which does not serve the interests of the search engine user. Search engines (as we tell our clients every day) are looking for relevance. Artificial linking systems do not provide that.
How can link networks kill your SEO?
Because links between websites are so easy to set up, building link networks became a huge problem for search engines in the late 2000's and early 2010s. As a result they built sophisticated software to detect and penalise sites participating in link networks. For Google, their response to link networks came with two major algorithm updates, known as Panda and Penguin.
The first of these - known as "Panda" - was rolled out in 2011. It aimed to penalise websites with low quality content (thin content). Websites participating in link networks tended to have lots and lots of pages with very weak (thin) content.
The second of these hit link networks even harder. Known as "Penguin", it was rolled out in 2012, and was directed squarely at link schemes and unnatural linking.
How to detect if you have been hit by a Google penalty for unnatural linking
The first way would be to check if your search positions dropped unexpectedly in 2012 or thereabouts. You can do this using Google Analytics.
If your website was not around at that time, then you have two further options. Firstly, register your website with Google Webmaster Tools. Then check to see if you have received a "Manual Action". This is where a Google employee has noticed that your website is engaged in unnatural SEO practices. Here's Google's official page on the subject: https://support.google.com/webmasters/answer/2604824?hl=en
What to do if you have been negatively impacted
If you have built a link network and you feel it is hurting your SEO, then you can take action to address this. Firstly, stop building unnatural links. Backlinks should be acquired from third-parties, not from sites under your control. Try removing links from websites under your control.
What if you really need to link to another site and they really need to you?
Don't worry. If there is a genuine user benefit to linking with another site, then don't sweat it. You're unlikely to face a penalty for such a small "transgression".
To make sure you will not receive a penalty, make sure your links are "nofollow". A nofollow link is a hyperlink which has a special attribute which instructs search engines not to follow the link or take it into account for ranking purposes. It's a quick and simple way of ensuring that your links won't be misinterpreted by search engines as spammy links. Your webmaster will know how to do this, or you can find out more about it on this Wikipedia article.
Conclusion
Ultimately, SEO is always about considering what is best for the user. The human experience of using your website. If you have Google or other search engines in mind when developing your website, you may make poor decisions based on what those search engines "want", instead of putting the human user front and centre.
Always think of the user first, and search engines second.