The ultimate guide to finally settle the directory vs. subdomain debate for blog hosting.
The "subdomain vs directory" is a never ending debate among SEO gurus ;)
That being said, here is some information on the subject:
Google, and more precisely Matt Cutts (one of the few google engineers who knows the "secret sauce" used by Google to score sites) says it doesn't matter:
Despite this, most people who have done numerical tests say that directories are better from an SEO point of view than subdomains (in other words, www.monsite.com/blog would be better than blog.monsite.com). See for example this detailed article from Moz.
The "pros" of the directory
Having a site layered with subdirectories tends to "force" the webmaster to create a more coherent site experience for the user, which therefore increases the generated traffic:
Internal links are more numerous and more relevant
If the blog shares the same theme as the main site, bringing the two together allows to unify the content of both sites in order to come out all the more reinforced from Google's point of view (concept of "Domain Authority", even if Google has never directly confirmed this point, so take it for what it's worth: a hypothesis from the SEO experts).
The design of the site is more homogeneous
The loading time is generally a bit faster (moving from one subdirectory to another is often handled by the same machine on the same browser session, while the different subdomains are not necessarily handled by the same machine and may require new DNS requests from the client's browser as well as the establishment of a new HTTP session)
The "cons" of the directory
That said, setting up subdirectories induces additional complexities:
No technical isolation: if the blog crashes, the main website crashes
Constraints on development: generally the same platform for the whole site (so the same CMS for the main site, the blog, ...) which potentially prevents editing the blog section "easily", for example via a dedicated CMS (Content Management System) like Wordpress if the main site is not itself under Wordpress...
The bottom line
Using subdirectories rather than subdomains to be sure to maximise SEO potential, why not! But on the condition that it does not impact the day-to-day operational side: the ease of editing new content is always to be preferred in these cases and having subdomains is not a drama in itself.
Side note: if the blog aims to generate conversions (not only newsletter registration but "hard" conversions), then we advise you to use subdirectories, in order to be "on-site", to have exactly the same graphical interface, and especially to show the user that he is on a transactional content.