To put it simply seo is not dead, and it wont be for a long time to come.
The reason Google values links and uses them as such a contributing factor in their ranking algorithms is because they represent another source approving or recommending your site - similar to the way that a university paper would show its sources and other studies that are relevant to the readers research / interests.
Now, ever since the search engines started people have been trying to "game" the system so that their website outranks others. It started with keyword & meta stuffing, link farms & duplicate content, it worked very well for a while as did the next few "generations" of seo including the most recent, which was link hoarding (think scrapebox, xrummer, seonuke ect). Now is just another generation of seo techniques that are reaching their expiry date.
Its fairly easy for Google to spot websites that have gained 10,000 links overnight from forums / blog comments / directories / spam sites and even easier if they all have the same anchor text and destination url.
People were so focused on their one and only keyword e.g. "car insurance" that they forgot to make it look natural. You linked thousands of times to your homepage with the same anchor text thousands of times - think, whats the odds of thousands of different webmasters using the same anchor text and all linking to the same page... Zero? Remember Google is thinking the same thing and they will punish you for it.
You need to distribute links to multiple pages on your site using a range of anchor texts over a sustained time period. When a visitor links to your page with anchor text they are giving the most accurate description of your site in it, this is why google has recently started changing the title tag in searches for sites with accurate anchor text links from multiple reputable sources.
You should also link your site to other relevant sites, for example if you owned a site that talked about "car insurance" outbound links to other highly reputable sites such as insurance associations, the dsa, police insurance pages etc will give your site more weight as a source of valuable information.
I am running tests on my own sites which are isolated on dedicated ips & servers to see if it is possible to get your competitors site banned / severely punished by google. Results arn't complete yet but out of my 5 test sites (all of which are virtually perfect onsite, had atleast 1 years age with plenty of unique content + match all of googles webmaster guidelines), 3 were knocked back into the hundreds for their main keywords, 1 uneffected, 1 removed from index. Still testing if googles warning in webmaster tools and replying to them makes any difference.
So to round it up, You should treat your site link a university paper - write excellent content that is written for people, then they will share with others in the form of a link, not just to the homepage but other pages that they found usefull, google will spot it and reward you with improved rankings for multiple keywords - your readers gave a diverse set of links & everybody is happy, especially you because you are outranking your competitors who are stuck in their own ways. As long as google search is alive it will have natural search results because they give so much value to the user, more so than paid adverts ever could in 99% non commercial of searches. If people just wanted to have paid results why is yellow pages website failing so badly?
If anybody want me to go into more detail about any parts of this just say and I will explain all day if I have to
Cheers,
WW.