If subdomains are used when setting up a Website, how might it impact the organization's search engine optimization (SEO) efforts? This is a long standing debate among experts. While it is technical, managers should be aware of the main points on both sides. Small businesses—either those handling their own SEO initiatives or those shopping for outside help—should know enough to ask applicants how they approach the issue.
I get a lot of good questions on subdomains. Luckily, I have a lot of good answers. So let's get to it.

What is a subdomain? A subdomain is just as it sounds, a sub or second-level of a domain. A standard domain looks as follows: www.mydomain.com. A sub domain would be http://prefix.mydomain.com. Subdomains do not take on the "WWW." All subs start with "http://subdomain/maindomain.com.
That's simple enough, I think. We have all seen a subdomain before. On to the next question.

Is it hard for a subdomain to rank well? Subdomains rank just as well as regular domains. Having a subdomain doesn't decrease your chances of ranking on search engines. You'll just have to treat each subdomain as a new, individual site. This means work on building PR and links. As with any domain, you don't get a free ride.

What are the benefits to using a subdomain? Some sites have many categories. It is fine to submit each subdomain as its own individual category. You would not get penalized. The links from the subdomains to the main domain would be looked upon as one-way links from another domain.

What are the drawbacks to using subdomains? Each subdomain would be looked at by search engines as a new site, which means you will need to do everything you would normally do for a new site. In short, creating backlinks, battling the sandbox, and all other problems associated with domain development are still present. If this sounds like too much trouble, you may want to consider creating subfolders within the domain. This would look like www.mydomain.com/folder.

If a subdomain becomes banned will it affect the main domain? The answer is yes. It may get the main domain banned if they are linked to each other. There has been proof of main domains being banned, yet I have heard of many instances where this did not happen. The question shouldn't be whether the main domain can get banned because of a subdomain. Instead, the question should focus on why a particular subdomain would get banned in the first place. If you want to experiment with untested or controversial methods, do so in a new domain.

So should I use a subdomain? If you can afford the time and money required to develop each subdomain and if your main domain would be too convoluted by having too much on it, I'd say yes. If not, save yourself the heartache and extra work. Just make your site easy to navigate, use folders and you should do just fine.