Why anchor text is so important

Anchor text becomes clickable as a hyperlink on a web page. Various web browsers and settings exert an influence how clickable links will appear on a web page. Usually anchor text highlights by means of a hand shape when you mouse over it.

Anchor Text HTML
The HTML for creating a hyperlink looks like this:
<a href="http://www.syncrony.com">Syncrony Web Design</a>

This will display as Syncrony Web Design

There are a number of additional attributes associated with the HTML link tag but these are not important here.

From a Search Engine's Perspective

If you want to deliver value to your web customers, you need to have a very clear understanding about how anchor text works. You need to produce web pages that are easy for humans to read at the same time as being formatted with search engine preferences in mind.

For an example consider this line from a cycling website: 

The art of riding on the wheel of the rider in front of you is a vital road cycling skill.

Imagine the following two scenarios:

The art of riding on the wheel of the rider in front of you is a vital road cycling skill Read More....

OR

The art of riding on the wheel of the rider in front of you is a vital road cycling skill.

Which is better? The top one with the Read more link adds zero value in terms of anchor text for SEO.

Reason: If you need to find out about road cycling the chances of your searching for Read More are zero. Unfortunately that is the very text that is going to get indexed as anchor text from your page. So no one will ever find that page unless they go to the site and read it there.

The line with anchor text that forms part of the sentence itself is of far greater value to the search engines and to human readers. You could link the anchors in the sample sentence to individual pages or you could have both links going to the same page.

You could also link the whole sentence but that will probably be excessive and it is generally accepted that we need to keep anchors to about 50 characters in length wherever possible.

Anchor Text Value Reduced
Of course many webmasters have realized how effective anchor text is at increasing a site’s ranking. As a result various different strategies have been developed. One major consequence was the growth of link farms. A link farm is a site that exists only as a source of pages with links. Often the farm owners will charge for links. You are strongly advised to avoid these kinds of sites.

Google recommends that webmasters make use of relevant links to their sites (backlinks). However Google says that participation in link farms may lead to a site having its search rankings penalized.

Anchor Text in Backlinks
When requesting links from outside sites to your website, make sure that you provide good anchor for your requested link. Use your keywords as the anchor text, never use your web address (URL) as anchor text.

References
Wikipedia – Anchor Text www.hobo-web.co.uk - SEO – Limit Anchor Text Links to 55 Characters in Length?