No terms were announced, but given that Seattle-based Picnik is a 20-person, bootstrapped start-up, the reasonable guess is that this falls into the “acquhire” category for Google (GOOG), whereby the company is more interested in the team than the product itself.

This seems especially likely in this case because Picnik is, among other things, the default editor for Yahoo’s (YHOO) Flickr.

That doesn’t mean Google will shut the service down (a la reMail), but I do assume they have different ambitions for the team that built it.

Meanwhile, here’s an addition to the “this is what it looks like when Google buys your company” gallery we should be compiling (see: Appjet)–a video of what TechFlash’s John Cook says is Team Picnik’s celebration. Which is considerably milder than those crazy Canadian hockey players.

People rarely tag photos because identifying and labeling the people in them is an arduous, manual procedure. This week, I tested the new version of Google’s free photo organizing and editing software, Picasa 3 ( picasa.com) and an updated version of its free online-sharing component, Picasa Web Albums. The Web component tries to take some of the work out of identifying people in your shared photos using facial recognition. It automatically isolates faces in your pictures, invites you to identify them by name, and then recognizes these faces every time they pop up in future pictures so they can be tagged with one click and no typing.

New and Improved

Picasa 3, the Windows desktop application, includes a handful of new or improved features, including smarter editing tools, like cropping suggestions, and a one-step process to share photos from desktop albums. It also has the ability to create movies from still photos; to edit video clips and to upload those movies to YouTube. Personalized photo collages are a snap to make, and pictures can be labeled with text right on the image.

But my favorite feature, the ability to name-tag faces in photos, is found in Picasa Web Albums.

When photos are uploaded from a personal computer to Picasa Web Albums and a user enables Name Tags, facial recognition finds all of the photos containing faces and then groups together the photos it thinks are of the same person. The user must create name labels to go with each face. Once a face is labeled, the program does a pretty good job of recognizing that face in subsequent photos and suggesting a name to go with it. These labels can be seen by you or others, if you enable visible name tags when sharing.

In Sync

Another plus in Picasa 3 and Picasa Web Albums is that both now clearly label all albums to show which are public or private, and which are set to automatically synchronize with the Web-based versions of these albums. And these two programs are smart enough to synchronize with one another using a single mouse-click. Picasa Web Albums worked so smoothly that I often forgot it was Web-based and not a desktop application. But all photo editing and retouching must be done on Picasa 3, the desktop program. This led to many moments when I became absorbed in Picasa Web Albums and looked there for editing tools before remembering I needed to return to Picasa 3 to touch up photos.

Likewise, name tagging can only be done on Picasa Web Albums because photos must be uploaded and scanned for facial recognition to work. I found myself offline in the Picasa software, noticing a photo with a face that wasn’t name tagged and wanting to label it, but not being able to do so without using Picasa Web Albums.

Some Back and Forth

I eventually got used to this back and forth between Picasa and Picasa Web Albums, but it could be a deterrent for some users. Google (GOOG) says it is looking into how to integrate name tags with its Picasa 3 desktop software. As for making a Mac-compatible version of Picasa 3, the company says it doesn’t have any plans to report. However, the Web component, including face recognition, works fine on a Mac, and Picasa offers a free uploading utility for Macs that allows pictures to be sent to Picasa Web Albums directly from Apple’s (AAPL) iPhoto software.

I was surprised by how much I enjoyed the process of labeling photos with name tags. This provided a new way to sort images according to who was in each shot, and Picasa even found some hidden faces of friends I hadn’t seen in photos, giving me a new perspective on an old picture. Of course, the system isn’t perfect. A few things — including a lamppost — were falsely identified as faces in my photo albums, and it even requested name labels for the faces in photos I took of Renoir paintings.

There’s no way to completely turn name-tagging over to Picasa; you must manually assign a name to each face. But this discovery process grows smarter the more it is used, returning accurate, selectable name-tag suggestions below each photograph. A People page lists all the people whose faces appeared in uploaded photos, and I started relying on this as a quick reference tool. A photo name tag can include a nickname, full name and email. If someone is already listed in your Gmail contacts, these data are automatically retrieved and entered as you begin typing a name.

A Sync button at the top of each album in the Picasa desktop software assures users that any changes or edits made to photos in albums on the desktop will automatically be reflected in the Picasa Web Albums. I tested this many times, and uploaded photos changed quickly to match the desktop copy.

Picasa 3 offers customizable photo collages and Picasa Web Albums uses name tags to label faces in photos.

Instead of uploading photos from Picasa 3 to Picasa Web Albums and then sharing them from there, users can now hit a Share button in Picasa 3 that uploads images and emails them in one neat step. Privacy status on all albums is clearly marked, both in the desktop software and online in Picasa Web Albums, so you know if your album is private or public. These options can be adjusted in Settings, where the language used to describe sharing conditions is very clear. I liked the useful editing tools in Picasa 3, including an automatic crop tool that generated three cropping suggestion previews per photo.

Getting the Red Eye Out

A new automatic red-eye removal tool returned accurate results; it was easier to use than most because it identified red eye for me so I could fix it with one click. “Fill light,” a standby in Picasa, is a movable scale that adjusted and brightened dark, shadowy photos that were originally hard to distinguish. I even found photos that I had not previously seen in their entirety — including shots of the inside of Notre Dame Cathedral and a favorite photo of me with friends in front of a sunset.

Along with these other features, Picasa 3 has a shortcut button for easy uploading to Google’s Blogger service and one-step Geotagging, which adds location tags to photos. This software also includes a nice-looking built-in photo viewer for looking at all images on your PC. Picasa Web Albums has a mobile component and a new way of finding public photos from around the world, called Explore, which reminded me of searching on Flickr.

If you’re looking for a richer photo-sharing service that doesn’t confuse users when it comes to privacy, Picasa 3 and Picasa Web Albums are well worth your time. And name-tagging will change the way you sort through photos, though it would be more useful if it was available in the Picasa desktop software, as well as on Picasa Web Albums.

Edited by Walter S. Mossberg

Write to Katherine Boehret at mossbergsolution@wsj.com