One of the questions I ask myself when doing an SEO clinic is whether the site is structured correctly. One of the things this includes is looking at whether (say) a blog, a forum or any other resource belongs in a sub-domain, a folder or on it's own domain. Now there are pro's and con's to all of the options, and what I suggest below is based around an ideal world scenario of lots of content being created, lots of relevant link building and lots of website traffic and engagement. So all things being equal and perfect lets take a look at which option is best for you and your website.
Should I Use a Sub-Domain?
A sub-domain is a website that sit's outside of the root directory. This means that subdomain.rootdomain.com is treated separately by search engines to www.rootdomain.com or just rootdomain.com. This separation is one of the reasons why some companies would use this option as it distinctly shows sections of a website such as a blog or forum.
However, that advantage is balanced by the subdomain having it's own link profile and not being seen as part of the root domain... this means for both subdomain.rootdomain.com and rootdomain.com to get a high ranking you have to work twice as hard (in theory).
Advanced notes: In reality a part of the link profile and ranking from the subdomain will pass to the root domain and vice versa, but not all of it. Indeed it is suggested that the proportion passed is less than 10% in some cases. Also in reality a subdomain is a folder within the root directory and is only aliased to the outside world. But shush, it's complicated.
Should I Use a Folder?
A folder is for example rootdomain.com/foldername - it is a folder within a root directory or another folder.
The use of folders is again for organisation but also to give the website structure. This is why many websites in particular online shops, such as Clitheroe Beauty Centre, where websites need to section the website into categories. In addition to this websites commonly use folders to hold subsections such as blogs, such as the this blog or a forum such as the SEOMoz Pro Forum.
The advantage to this structure is that the root domain gets all of the link profile from that folder, and the folder gets the link profile of the site as a whole. It's a win win... however, nothing is perfect. The folder option can cause technical issues with redirects, cross-linking of resources, conflicting htaccess files and some other bugs.
Advanced notes: Whilst you may choose a subdomain for recognition and a little extra freedom, it (in general) should be seen as a bad way forward for SEO. No body really wants to build up 2 link profiles or more for the same root domain, its creating a rod for your own back and whilst a subdomain can be removed later your link profile issue will still remain for sometime. Redirects are not a perfect solution for moving your rank profile, so where possible start with a folder.
Should I Use an External Domain?
Using an external domain (such as rootdomain.com and rootdomainblog.com) can be useful, as you build 2 link profiles compeltely independent of one another and you can use those profiles to (in theory) boost the other's profile. But again building 2 link profiles isn't the best idea nor the best for work load.
The only time I could really advise using an external domain is when you either want to target a specific country or when you have previously had a subdomain but realised it's not the best solution. External domains are great for Geo Targeting, in partic if the external domain targets another country in another language.
If you are starting from fresh structuring your site and it's assets, this is not an option you will want to take. It prolongs the ranking process and can at later stages be seen as manipulation, though from a separation of brand is handy sometimes.
So, Which Structure is for You?
Overall I hope the above has given you a good overview of each use case and some pro's and con's. The reality of recent updates from Google means that a subdomain should not really be a choice moving forward for new websites.
To decide which you should use, here are a few questions and answers:
Do you want and can you afford to support one domain or multiple domains? If you want to look after a single domain, choose a folder. If you have the time and want to have multiple domains, choose an external domain.
Do you have the skills and knowledge to set up a subdomain or additional domains? If you answered "no", choose a folder. If you have the skills, all choices are open to you.
Can you build an SEO Campaign around them? Any rootdomain (inc external) is easier to build a campaign around A subdomain is less likely to be remembered and therefore harder to SEO.
Can you build enough links to two areas? If you have a team of one or two you are likely to not have the resource to link build greatly for more than one area. If you have a staff of around 5 you could and may want to look at an external domain.
Have recent updates changed anything? Yes, recently there has been an update (spotted by SEOMoz) where subdomains seem to be being wiped from search rankings. It is unclear whether it is due to low quality content or spammyness or just a general move to "no more subdomains". But for now better safe than sorry, don't choose a subdomain for holding files.
Finally, which is the best solution for you? Truthfully, as an SEO I would stick to using folders unless you are targeting a country or language. Even in these cases I would think carefully about a new domain compared to say integrating Google Translate. A subdomain is as hard to look after as a second domain, but a folder is not (given it's part of the root). In most cases (not all but most) folders are the correct structure to build your website and link profile. If you really want to have a subdomain for recognition but have now changed your mind you could look at setting up a redirect for the subdomain url (which will only exist virtually in .htaccess) into the given folder.
I know that I've rambled a little in this post, but I needed to give an overview of the solutions and possible outcomes.
If you have any questions about which solution is best for you, please leave a comment below and I'll get back to you.