Many webmasters believe that the best way to get good search engines is to figure out how to get “one-way” links to their site. They come up with some not so creative ways to do this and one of them is a 3 way link exchange. I link to you from my second site (Site B) and you link back (Site C) to my main site (site A). so it looks like this:
First off Google can detect this type of exchange so there is no added value to it. Matt Cutts has stated that they can do it and showed off at a recent SEO conference that he could do it on the fly with just his laptop.
Next the only one that gets a good link is the person that has the two sites. Most of the time the second site that they are willing to link to you with is a worthless throw away site and a link from it will be worthless. Most of the time it will not be a site that the owner is promoting or trying to get to rank in the search engines, it is just a site full of links.
The worst part is that they are very hard to track when you decide to check to see if everyone has left up your links. It is also hard for the other party to track. So there are many times that these links get deleted when they shouldn’t have and one party ends up removing a link that they shouldn’t have.
This was also the topic of a recent scam notice that I posted about last month.
My personal opinion is to not bother with 3 way exchanges and that you should look for quality places to get links from. Not places that are looking to game the system by trying to hide what they are doing from the search engines. Talk about raising your hand and saying I’m guilty punish me.

Just out curiousity, couldn’t you do a 3-way exchange between 3 sites that each have a different owner? Yes, it would be tougher to track, but you’d all 3 benefit if the three sites involved were all quality sites. It would be pretty hard to organize though, it’s tough enough to work something out between two people.
Just a thought,
Dave