SEO consequences of using a subdomain for an externally-hosted blog?
There are a lot of advantages to self-hosting your blog.
- You can do whatever you want with your own self-hosted blog. On Wordpress you could get banned and lose all of your content.
- You can host ads or and do other commercial stuff not possible on Wordpress. (The free wordpress blog doesn't allow any advertisements other than their own ads).
- Better ranking opportunity in search engines by using your own top-level domain.
- You can modify your functionality at will.
- It looks more professional and gives you bragging rights.
- On Wordpress you may run up against bandwidth restrictions if your blog gets really popular - you won't be able to do anything about it.
Willem Obst answer makes some excellent points, but two serious accusations that are not correct. I know these are incorrect because I am part of the WordPress.com team.
Num 1. If there is a ToS issue, we work with our customers to resolve the issue. In the rare case, where a blog is suspended, the customer is still assisted with exporting their content.
Num 6.We have no bandwidth limits and never have.
Many companies use free WordPress.com for their blog. Here are some exampleshttp://wordpress.org/showcase/flavor/wordpresscom/
WordPress.com is also is a blogging community which gives you access to a large audience and the community features like the global tag pages.
It's a great way to get a blog going, and there is no lock in. Here is an example of a blog by some friends that started on WordPress.com and since moved to host it themselves to gain the additional flexibility Willem describes so well: http://blog.bootuplabs.com/
Finally to the original question. It's a mixed bag.
The nay sayers to using a subdomain will focus on Google and other search engines generally treating the subdomain as it's own domain with it's own authority.
The pro subdomainers will focus on it being another opportunity for a result in Google and the search engines. As is the case for the "bootup labs" example. (Although, Google's Matt Cutts over a year ago promised this was changing.)
Unrelated to SEO, many teams use a subdomain or separate domain all together for web security reasons. You may notice that http://blog.flickr.net/ is on flickr.net instead of flickr.com primarily -- I understand -- for this reason.