Here is what I’ve pieced together from some reliable sources:

• This is not a rumor. This is a real project. There are a large number of people working on it. I am completely confident about this.
• They realized that Buzz wasn’t enough and that they need to build out a full, first-class social network. They are modeling it off of Facebook.
• Unlike previous attempts (before Buzz at least), this is a high-priority project within Google.
• They had assumed that Facebook’s growth would slow as it grew, and that Facebook wouldn’t be able to have too much leverage over them, but then it just didn’t stop, and now they are really scared.

(Incidentally this turns into really shrewd “side PR” for Quora, where there’s lots of activity and discussion around this topic.)

Facebook could eventually overtake Google as the most visited site on the internet. That would be a mostly symbolic event when/if it happens but it would freak Google out and would suggest to the media that Google is in decline. Hence the comment above . . . “and now they are really scared.”

Currently Facebook is not a “threat” to Google as a search engine. Only with a radical overhaul could search on Facebook start to peel away usage from Google. I’m not saying that’s not hypothetically possible. But it doesn’t really look probable for the foreseeable future at least.

Back to “Google Me.” What would need to show up to make a viable Facebook competitor? That’s a very challenging thing to imagine. Here are some general thoughts:

• First and foremost Google would need to get privacy right; it would need to be the anti-Facebook, bending over backwards to protect user privacy
• It would need to focus not on rapid, viral growth or Google’s “needs” but on users and their interests and needs
• It would need to be a place where private networks of people could exist and communicate and where people could create multiple profiles/identities that correspond to their real-world lives (work, school, family, etc.)
• It would need to enable people to share and upload media easily, tapping into Picasa and YouTube
• It could be a communications platform and integrate Google Talk and/or Google Voice
• It could use the Aardvark infrastructure to enable people to ask their networks questions and get recommendations
• It could use Latitude and Buzz for location-based tips and information on the go
• It would need to be mobile and offer an app
• It could include Calendar and/or a simplified version of Wave for collaboration and planning
• It could put Google search at the core to enable information to be quickly obtained and shared
• It might be an apps platform too

Many of these capabilities and tools do exist on Facebook now. And this laundry list of possibilities does not a product make. That’s the daunting task that Google faces: how to build something that accomplishes multiple goals, does one or two things things that Facebook doesn’t and is put together in an elegant way.

A different sort of user experience and interface could be a way into differentiation for Google Me. But simply “modeling it off of Facebook,” as the D’Angelo post suggests, won’t fly. A copy of Facebook with the Google logo on it is all but destined to fail.

Look at Buzz, a product that perhaps isn’t dead technically but may effectively be so. Beyond the privacy fiasco and the botched launch, Buzz never fully answered the question “why?” Why should I use it?  Similarly, for Google Me, what capabilities or services or tasks does it offer or enable that Facebook doesn’t or can’t? Because if Google Me can’t answer the “why question” it’s DOA.

Google Buzz became “yet another” site and tool to update. A Google social network and successor to Orkut fundamentally must answer this “why question” in view of Facebook’s near total market dominance.

It’s the flip side of the question that all other search engines must answer vis-a-vis Google.

Postscript: One interesting additional thing to consider is whether Google might try to lead with mobile and make any site/network primarily mobile but with an online component. Google is placing more and more emphasis on mobility, even to the point of slogan-izing it: “mobile first.”