According to Google, sponsored posts are just another form of paid links.

The legendary John Chow recently discovered that Google has decided to penalize blogs that are affiliated with PayPerPost, a popular paid posting service for bloggers, by reducing their PageRank to 0. Clearly, this is connected with Google's ongoing battle against paid links. While I am sympathetic towards Google's efforts to keep linking merit rather than profit-based, I must admit I am a little more saddened over the harsh penalties inflicted on bloggers in the PayPerPost network than I was at the PageRank reduction that some paid linkers experienced a few weeks ago. To begin with, this penalty is harsher -- all affected blogs seem to have lost all their PageRank altogether rather than just having their PageRank reduced. Secondly, I must admit I have a higher regard for IZEA, PayPerPost's parent company, than I ever had for Text Link Ads, the most prominent arbiter of paid links. PayPerPost has consistently provided opportunities for all kinds of bloggers, small and large, to make money by writing paid posts. While Text Link Ads paid links typically look a heck of a lot like any other link, PayPerPost posts are often immediately recognizable as paid posts even if they are not specifically identified as sponsored posts (why else would your favorite washing machine blog be talking about mortgages all of a sudden?!) and they can even be fun to read, depending on the creativity of the blogger involved. A lot of small-time bloggers (many of whom use Google's Blogger to host their blogs) are going to be hurt by this, in contrast to the previous paid links crackdown which affected a lot of blogging's fat cats.

At the end of the day, though, isn't a paid link a paid link? It's true that PayPerPost in practice led to a lot of blogs linking to a lot of sponsors merely because money had changed hands. While bloggers in the PayPerPost network can control what text is posted on their blog, Google the search engine is not smart enough to consider the context of a link in a blog post. It just sees the link, and it doesn't understand that some links aren't necessarily an indication of quality or popularity. I honestly think PayPerPost could survive even if paid posts all had no-follow links to sponsors because it is still worthwhile for the sponsors just to be mentioned in multiple blog posts -- paid posts are content which will be indexed in search engines, even if the links don't impart PageRank, and all the links can still drive traffic. For now, IZEA seems to be taking an uncompromising, unrepentant stance; they hope to continue "business as usual" without relying on Google PageRank at all. I'm not sure Project Goo-Gone is going to have Google shaking in their boots any time soon, but there are a lot of people who aren't feeling too thrilled with Google tonight.