I have been told by an SEO specialist that if I start a directory and have paid listings or banners that Google will penalize any SEO I try to do on the site. Is this true? What has everyone's experience been with this?
Paid listings/link selling can affect PR, banners should be fine and a directory should be ok as long as it doesnt interfer with the main site
Its the quality of the directory that matters. Take a look at yahoo directory, its offers a paid service. But they also reject most of the submissions. If you offer a paid directory, and accept "every" submission, including spam, then yes there is a VERY good chance that google will slap a penalty on you. One of the keys to staying away from penalties is to keep the spam sites out. Only link to sites that have quality content on them. If the domain name expires, and is parked, that link needs to be removed from the directory. Stay away from warez sites, or sites that promote copyright infringement. If you keep the directory clean, you are less likely to get a penality.
I agree with Kev, keep your directory clean, avoid cluttering it with too many advertisement or affiliate programs. If you are planning a paid link directory, you may avoid advertisement at all, it will make a cleaner and more professional look. Moreover don't forget to setup rel=nofollow on paid link, play nice with the googlebot and it will reward you
It is hard for Google to determine if a link has been paid or not. This information is not found in the HTML code. I try to see if this may really affect publishers. Try to avoid link farm sites. I believe it will be ok if your links look natural: A link with a lot of text around.
It all depends on why you've set up your directory. If it is purely for selling links then you'll get penalised. My suggestion would be only to sell one featured link on each page.
Agreement with most of the above. If your site is adding value (i.e. making it easier for people to find whatever they are looking for in your vertical) then the links from your site won't hurt you as long as they are no-followed, placed sparingly, don't link to inappropriate or spammy sites, and the overall "meat" of your directory contains quality sites as well.
Well, it will be a resource directory that offers articles, listings, promotions and classifieds in a specific niche.