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Matt Cutts: In a sense I’ve answered this question in the past but since enough people are curious to ask I’ll do the spiel again.

Whenever we look at whether a directory is useful to users we say, “ok what is the value add of that directory? Do they go out and find entries on their own or do they only wait for people to come to them? How much do they charge and what’s the editorial service that’s being charged.”

If a directory takes 50 USD and every single person who ever applies in the directory automatically gets in for that 50 dollars, there is not as much editorial oversight as something like the Yahoo directory, where people do get rejected.

If there is no editorial value add there, then that is much closer to paid links. In fact, if you look at our webmaster quality guidelines, we used to have a guideline that says, “submit your site to directories” and we gave some examples of directories.

What we found was happening was people would get obsessed with that line and go out looking for a lot of directories. And there were people who were like “oh well, if people are looking for directories I’ll make a directory.”

So you saw these fly by night directories that would start up and say “oh yes I’m the PageRank 6 directory, you give me 50 dollars and you’ll automatically get an entry in my directory.” And you know it’s not as if those types of listings are the sort of things that users really value, or that do a lot of good in our search results, or that we want to do a lot of good.
So we ended up taking out that mention in our webmaster guidelines so that people don’t get obsessed with directories and think, “yes I have to go find a bunch of different directories to submit my site to.”

There are some directories that do carry weight. You know the Yahoo directory does a good job of editorial discretion and actually doing a review and rejecting a significant number of entries that are low quality.

So the question on your mind whenever you are considering a directory is, what is the value add, do they have high standards. I have a blog post out where we talk about some of the other different factors of a directory and whether we might consider it as real, but those are some of the factors that you should ask yourself about.

So by those measures, no, the Yahoo directory is not just automatically paid links. Typically paid links are going to be much lower quality. They’re going to be much more automatic, people would give you whatever anchor text you want, and all those sorts of things.

So there is a difference. And at the same time, don’t go overboard worrying about submitting your site to every directory. If you make a great site and try to make sure that people find out about it, those are some of the things that really make a difference. Not; “ok, I have to go submit my site to at least 5 directories, or at least 10 directories” or anything like that.