Should I link to my competitors?
Having quality, relevant inbound links to your website from other websites is one of the most important strategies to creating high rankings in the search engines for your key words or key phrases. High quality can mean that the linking site also gets good rankings and its pages have moderate, good, or high Page Rankings on the Google Toolbar.
Too many website owners believe that they should not accept or trade links with their competitors when such offers occur. This is often a very shortsighted approach. The Internet and search engines have changed a lot of the old tactics of marketing and advertising.
Usually, you would put a link that you are trading with another website on a Links Page, Resources Page, Partners Page, or whatever you might call it. Often the link to this page is at the bottom of your homepage in smaller text, or on some other page of the website. When someone comes to your site after finding you in a search engine for the term they searched for, it is highly unlikely that they will be looking for your Links Page; they will be seeing if you site offers them what they have been searching for. If they have found what they are looking for and contact you, or buy your product, you win! If they don’t, they may go back to the search engine’s listings to look for another site. (The search engine will note how long that person stayed on your site and whether they came back to look for another site in the results. If the search engine sees an overwhelming number of visitors return to the search engine, they might reconsider your site’s value for that search term.) On the other hand, if the visitor stays on your site (often because they find it pleasing and easy to use) they my look at your Links Page and find a possibly valuable link to the site of one of your competitors.
So the visitor was going to leave your site anyway. Better they leave through your site. The search engine will not know that the person left, and you may have made a friend by being a good resource.
The few people who may find a link to your competitor (that they may very well have found in the search engine anyway) is very much compensated for by the increase in your rankings in the SERPs (search engine results pages) that the reciprocal link on your competitor’s site gave you.
Remember, whether it is a link to a competitor, or not, the reciprocal links should only be exchanged with quality, relevant, websites. Never use link farms, or pay for links!