Technically, paying for web directory submission is not the same as paying for text link advertisement. When you submit to a directory, the payment is not merely for a link but for a service. You are in fact paying for the editorial review of your site, entering it into the system and fine-tuning the website details. Certain directories charge review fees for checking each site periodically to ensure that it is still active. In case they find that a site is offline or that the content has become inappropriate, editors of a reputable directory may remove it from their listing. You are usually charged review fees for the same every year.
However, Google WebmasterHelp has uploaded a video in which Matt Cutts answers a question from a user based in San Francisco, California regarding why paid directories are not held to the same standards as paid links. Here are some of the core facts that Matt Cutts mentioned in the video.
According to Matt Cutts, the assumption that paid directories and paid links are held to different standards is entirely wrong. He said that in most cases they are attributed the same standards, especially in the case of some fly-by-night paid directories. These directories, having the advantage of PageRank tend to advertise themselves. The problem with such directories is that they accept submissions without any substantial review. Google penalizes such sites by lowering the page rank, indicating that the links of these sites canâ€™t be trusted. He admits that some directories such as Yahoo exercise editorial discretion and reject a substantial amount of unworthy entries.
What aspects does Google consider when penalizing a directory? They consider whether the directory has appropriate editorial discretion, whether it is just an unreliable directory that approves any text without prudence, whether it is a directory that is run with a script, and so on.
However, Google does give credit to the value-add of the paid directory. This is defined as the amount of work they are putting in actually. If their contribution is not substantial, then that directory would be counted as a low-quality or spammy directory. Directories that prove to be no better than link schemes will be held to the same standards as paid links.