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Lots of buzz out there that Google has aquired Riya, the start-up that uses facial recognition technology to allow you to tag your pictures more efficiently.

The rumor is $40 million, but this is still in the rumor category, because Riya chief executive Munjal Shah refused to comment on the rumors during Riya’s launch party Friday at Michael Arrington’s place in Atherton.

We find the possibility of such an acquisition quite outlandish, considering Riya has had only something like 15 to 25 users in its first “alpha” testing phase, according to Shah Friday evening. Maybe one of them was Google co-founder…

Larry Page?

We last wrote about the company here, where we mentioned a trend of bigger companies like Google scooping up smaller companies before venture capitalists get to them. As the competition intensifies between Google, Yahoo and Microsoft (GYM), this arms-race may get as feverish as the one between Cisco, Nortel and Lucent during the first bubble era.

We note that Munjal, on his blog as recently as Nov 10, was still talking about “options” for his second round of financing. So maybe what happened was that Google approached Riya, and threw out an offer, and they’ve been negotiating? And thus producing the rumors? Yet we find it hard to believe this has been wrapped up within six days.