As per Wikipedia,
“The 404 or Not Found error message is an HTTP standard response code indicating that the client was able to communicate with a given server, but the server could not find what was requested and rather returns ‘server not found’ page”.
Coming back to my question. No, 404s (not soft 404s) don’t effect the ranking of a website. In fact, Google itself uses 404s on its website.
404s are part of a content cycle: new content is born? old content?when it dies, it returns a 404 HTTP response code. A Server generated 404 code is, actually, the ideal way for a web server to let Google, and the other search engines, know that the page is no more available on it.
A number of cases when a webpage on your domain has to generate return a 404 page. Suppose, you relocated your business HQ from Sydney to Melbourne.
The page URL for the original HQ was www.example.com/Sydney-HQ. After the relocation, the URL was no more applicable. Consequently, you deleted it. Now, whenever somebody, including Google Bots, tries to visit the page, the webserver unable to acknowledge the request, returns a 404 http status code rather. The user in response to the code sees a 404 page. The 404 page can be designed, accordingly.
Suppose in the above example, what if the 404 page was generated without the generation of 404 http status code. Users will think of it as a proper “Page not found” error, but not Google Bots. Google Bots will see the actual status code, which is most likely to be a 200. If you have many Soft 404 pages, Google might penalise you for duplicate content too. Thus, Soft 404s should be avoided at all costs.
How to decide between 404s, 410s, 200s, and 301s?
Remember, only use 404s when a page is deleted permanently, not migrated. If migrated, use a 301-redirection code rather. Put the code on the deleted page, pointing to the new URL.
Google treats 410s (Gone) and 404s (Not found) as the same. So whether your server returns 404s or 410s, Google treats them the same.
If your Google Webmaster Tools’ crawl error page is full of 404s, there is no need to worry. Your ranking on Google will remain unaffected.
Also read: Top Ten SEO keys to unlock the Rest of 2015