Anchor text is the visible hyperlinked text on the page. Let's take this example:

"Please examine our SEO case studies for validation to evaluate our search engine optimization capabilities."

Here the words "SEO case studies" and "search engine optimization" are hyper linked to the URL address  http://info-mgt.net/search-engine-optimization.html. The words within the hyperlink, "SEO case studies" and "search engine optimization", are called the anchor text.  Consider the anchored text as a vote for our web page, http://info-mgt.net/search-engine-optimization.html, to be found on the serach engines for these specific keywords / key phrases.

Anchor Text Enhances the Relevance of the Target Page

Please note that the keywords in anchor text enhance the relevance of the target page pertaining to the keywords used. While the relevance of the page containing the anchor text is also enhanced to some degree (because of relevant keywords appearing on that page), the real gainer is the target page URL. Use this knowledge to build the relevance of each page of your site, through optimized anchor text containing important keywords, relevant to the theme of such pages, from other pages of your site.

Search Engine Algorithms like Anchor Text.

The inclusion of important keywords in the anchor text can make a big difference in the final ranking of your site pages. All search engines that matter, give significant weight to the anchor text on your pages. In fact Google even has a special operator: allinanchor:keyword', which picks up text only from within the anchor text of indexed pages. This further implies that Google's algorithm is configured to index anchor text as separate queryable data, thereby, making it evident, that Google considers it an important pointer to page relevance. Our internal research leads us to believe that weight given to anchor text has been raised recently in the Google algorithm. With these changes, it is possible to enhance your website's ranking by using the right keywords in anchor text.

It has also been studied that anchor text, whether from external, or internal pages, is important. It should therefore be ensured that significant attention is given to the inclusion of important keywords in your anchor text.

How to Optimize Anchor Text Within Your Site

Anchor text optimization can be deployed throughout your site to enhance the relevance of most of the web pages based on individual page content. You would be surprised, how easy it is, to find suitable instances of hyperlinking structures to make use of optimized anchor text.  When linking to internal pages, it is better to use the format:

Read all about Anchor Text Optimization.   VERSUS   Read all about Anchor Text Optimization here.

The above example shows us that you can leverage the hyperlinking of important keyword phrases instead of hyperlinking unrelated text wherever possible. It is always a great idea to restructure sentences if keywords don't fit in anchor text.

Using Keywords in Natural Text to Create Anchor Text
You can also locate (or insert) important keyword phrases in your page's natural text and link it to relevant target pages of your site. Consider the paragraph below: -

Search Engine Optimization is an important part of any search engine marketing initiative. Some people believe that submitting the site to search engines alone is sufficient in getting top-10 ranking. This is not true. Search engine submission only announces your site’s existence to search engines. To get a good search engine ranking, it is important that you carry out Title tag optimization, Meta tags optimization and anchor text optimization of your website amongst other SEO techniques. You’ll need to optimize the visible text of your site through SEO copywriting after an extensive keyword phrase research. It is also important to boost your Google PageRank in order to get a good website ranking. You can increase PageRank of your site by building your site’s link popularity through a link building campaign. A link exchange campaign with good industry relevant sites is the simplest way to get several incoming links to your site quickly. Remember, search engine positioning is a powerful media for your website promotion.

While the above example seems like overkill, this is just to illustrate how you can accommodate your important keyword phrases by carefully rewording the text of your web pages. If you feel that the visible hyperlinks appear ugly on your website, then you can re-format the HTML markup code appear like all the other text and get rid of the underline without losing the power of the anchor text.

Optimizing Anchor Text of External Links

Keywords within the anchor text are equally useful from links pointing to your website. If you are pursuing or considering a link building campaign, put some serious thought in writing multiple options of the title and description of the link pointing to your website.  The "title" which is usually used as the hyper-linked text, should contain your important keywords. It is good to work with ten different options of title and description as it not only gives you more room to play with several keywords, but it also helps search engines give you a wider keyword coverage.  When soliciting external links, it is better to provide your own "cut and paste" HTML code. Webmasters like it when a ready to paste HTML code is available for them to use, to provide a link to your website.