Matt Cutts made a couple of thought-provoking comments in his blog regarding subdomains and subdirectories, knowledge which may come in handy as you plan your Web site taxonomy and content.
For several years Google has used something called "host crowding," which means that Google will show up to two results from each hostname/subdomain of a domain name. That approach works very well to show 1-2 results from a subdomain, but we did hear complaints that for some types of searches (e.g. esoteric or long-tail searches), Google could return a search page with lots of results all from one domain. In the last few weeks we changed our algorithms to make that less likely to happen.
This change doesn't apply across the board; if a particular domain is really relevant, we may still return several results from that domain. For example, with a search query like [ibm] the user probably likes/wants to see several results from ibm.com. Note that this is a pretty subtle change, and it doesn't affect a majority of our queries...
My personal preference on subdomains vs. subdirectories is that I usually prefer the convenience of subdirectories for most of my content. A subdomain can be useful to separate out content that is completely different. Google uses subdomains for distinct products such news.google.com or maps.google.com, for example. If you're a newer webmaster or SEO, I'd recommend using subdirectories until you start to feel pretty confident with the architecture of your site. At that point, you'll be better equipped to make the right decision for your own site.
Search Engine Watch presents their take on subdomains and subdirectories in SEO Strategies: Subdomains and Subdirectories
Subdomains should only be used when you have enough vertical content to support a standalone Web site. Subdomains are effective because they "piggy back" on the value of the root domain, whereas if you bought a new domain, it would have no authority/age. Plus, there are some unique things you can do from a SEO perspective.
One thing to keep in mind is that your subdomain's content should be unique, says SearchNewz "Advice On Subdomains Vs. Subdirectories For SEO"
I've seen a lot of sites which had varying degrees of quality in their subdomaining strategies. If you do have subdomains, you should ideally insure that they contain primarily unique content not reflected on your other domains " each subdomain should contain page content that does not also live on other subdomains or else it can appear that you are attempting to spam the search engine indices.
If you are considering how to structure your URLs and site content for natural search marketing, I'd say you might be better off just using a simple format of descriptively keyworded directories and subdirectories rather than keyworded subdomains. This is often easier to manage, and it looks a lot more natural/reasonable from the search engines perspective. Theres lower likelihood of accidentally mirroring/duplicating your content, too.
When all is said and done and you've poured what you could into your site(s), take a step back and come at it from the perspective of your target market. Redundancy or sub-par content can not only ruin your search optimization efforts, but also your reputation as an "expert" in your business/field.
