Sites like this benfit nobody except the publisher and Google. And they don't really benefit google inthe long run: This sort of site is the reason Google introduced smart pricing. Now, what would be really interesting is if Google changed the smart pricing algorithm to take into account the SERP position of the publishers webpage for those keywords which the advertiser is bidding for.
They are paying for the traffic with PPC (pay-per-click). Traffic isn't coming from search engines, which they could care less about. But it would help since they'd get traffic which hopefully turns into clicks, which is money. The search engine traffic is just a bonus which they don't try for (and usually never get).
The problem I see with that is the site in question looks like it relies strictly on adsense for revenue. If they pay for the traffic, aren't they losing money because they would need every visitor to click on an ad to make any money at all.
It's called arbitrage(sp?) in which you find certain keywords that cost less but you get paid more per click.
http://www.5-top-sites.com/ It's a normal implementation of Adsense But this one is quite disturbing http://www.5-top-sites.com/1/Hotels/
I guess its not exactly breaking the TOS but it is sailing close to the wind if you look at the directory pages. I think it really goes against the idea of getting good content onto the web and then giving you something back with adsense. But hopefully google will start cracking down on these types of sites, but then again google are still making the most money out of the sites.
I dont care whether thats against TOS or not but as a publisher I always add sites like that into my competitive ads filter because I dont want my visitors think I recommend crap for them.
I really do not feel that Y! or Google care about TOS. As everyone has pointed out they are more concerned with earnings. Just as long as the advertisers are not pulling out they will let anything go. Here is an example of one publisher that seems to have different rules than the rest of us. They have YPN and Adsense on the same page along with other contextual ads.
RELATIVELY, such site got much higher revenue than any other "normal" site: 1. There are only ads on it`s secondary pages. No other content to distract visitors. If there is a click - it will bring money, while in normal sites the chance for money brining click is much lower. 2. This kind of sites get quickly into google index (they`re generated with 200-1000 starting pages), generate income and then most likely die, all in 3-5 months. Normal sites get slowly into google due to low pages amount, so they will start brining first cents in 6-10 months. Its a well crafted adsense spam site, you really cant say it brings bad revenue