There is an interesting thread at WebmasterWorld about a site that appears to be losing ground in Google because they used the nofollow attribute for linking to some of their internal pages. For example, they nofollowed links to their privacy policy, contact us page, user agreement, terms of service and so on.
theBear, someone I really respect in the forums, responded saying something very true:
Only part of which is strictly PR related, depending on how Google looks at things the related link text should be made moot, the page that is doing the link just had an update done to it, and the page linked to should have also lost an IBL. So could this affect ranking etc? Yup.
Then WebmasterWorld administrator, Tedster, response with more food for thought:
Let's take a very naive look at this. The rel=nofollow attribute was introduced to combat blog comment spam. It was supposed to mean "I don't vouch for this link."What message does that send if the link goes to one of the pages on your own site - especially to contact information which certainly you would "vouch for"? I think the message is very clear: "I'm trying to manipulate Google's rankings for my urls."
But let me add one more twist to this. In the past I reported how Google handles the nofollow attribute. Specifically, that Google will not crawl a link that has the nofollow attribute on it. Adam Lasnik of Google specifically said that. But of course, Google will crawl the same URL if it is linked to elsewhere, without the nofollow attribute.
So, if Google won't crawl a link that has the nofollow attribute associated. And if these pages are not linked to from other sources (typically a privacy policy, contact us page, user agreement, terms of service type of page), then they won't do well in the search results. Plus, those pages (the ones that are linked to using the nofollow tag) will not benefit your other pages on the site.
All in all, the theory has some substance. But I can see an argument against all three points in this article. Kind of makes for a good thread.
Forum discussion at WebmasterWorld.