While it may seem that Google’s lost momentum–by not partnering with Facebook–I see it more as a sign that Microsoft knew Facebook was its only hope.

Let me explain.

Social networks are hot, hot, hot, right now. It doesn’t really matter which one you prefer–MySpace, Bebo, Facebook, or Dogster–social networks are the next evolutionary step in the growth of the internet. Now that we’ve all learned to check our email, order online, research restaurants, and read news, we’re starting to use the web to connect with each other. We’ve realized that we enjoy making connections, sharing our random thoughts, and turning our friends into virtual zombies. Social networking is the second generation internet.

Unfortunately for Microsoft, social networks have to be perceived as cool, exciting, trendy places to hang out at. None of those words apply to Microsoft–sorry guys. But, just like the rich kid in school, Microsoft has enough money to buy itself some friends–or in this case, a network of friends. For Microsoft, the only choice was to buy a piece of a popular social network. No one would ever feel excited about joining a network called “Windows Live MyBeboBook.”

Then there’s Google. How cool is Google’s brand? Uber-cool. When Google launches a new product–heck if Google hints at a new product–the whole world goes nuts. Along with Apple, Google has one of the best brands in the world. A brand that can make us all drool and pander after their every announcement. When Google farts, we want to have our nose close by–that’s how much Google is loved.

If Google really wants to build a popular social network, it can. I’m not talking about the crappy science experiment they call Orkut–you don’t expect a social network to become popular when it sounds like a pest control company–but a real “Google” social network. A social network that already has all of the pieces in place: email, instant messaging, blogs, image and video sharing. If Google really wanted to own a social network, it could take the $240M it just saved and put that towards building a kick-ass one. A few rumors, closed beta invites, and denials of competing with MySpace later, and the whole world’s going crazy over Google Connect (or whatever they want to call it).

So you see, Microsoft had no hope other than to buy into an existing social network that was popular enough that even the “Windows Live blah blah blah” couldn’t slow it down. Google, on the other hand, knew it didn’t have to partner with Facebook at any cost, they could bide their time and decide whether they want to build their own social network.

Besides, give it a few more years and we’ll all have Google implants anyway–that’s when Google will tell us which social network we should join.

UPDATE: Sure, MSFT has Windows Live Spaces, but with a 0.15% share (even Orkut is higher) and a focus on blog content, it’s hardly something the company can rely on.

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Jeff Clavier – SoftTechVC

Invests his own money normally for under $1 million investments. Actually considers himself to be a bit more like an angel investor than a normal VC> Involved in Dogster, Userplane (which was profitably sold to AOL), and a new gaming platform.

Michael Eisenberg – Benchmark Capital

The overall Benchmark Capital funds manage a few billion dollars, with offices all over the world. Michael is based in Israel. They’ve Invested in ebay, Second Life, Metacafe, bebo, and Yelp.

David Kornik – August Capital

He’s the father of VC blogging with his blog Ventureblog.com.

August runs a 350M fund. They’ve invested in Six Apart, VideoEgg, and Technorati.

Josh Kopelman – First Round Capital

$50 million fund, with primariliy first seed round investments in the $250k-$500k range.
They’ve invested in StumbleUpon, del.icio.us, VideoEgg, Gigya, and Aggregate Knowledge.

Chris Moore – Redpoint Ventures

400M fund, invests in consumer internet. Invested in Ask Jeeves, Excite, Netflix, and Tivo in 1.0 phase. 3-4 years ago refocused to Myspace, Gaia, Buzznet, Right Media, Efficient Frontier, and Leadpoint.

The following is a paraphrasing off the conversation.

Arrington: When you invest small amounts, do you require a board seat? What’s the average first round size?

Dave: In almost every case we end up sitting on the board. It’s more about if it’s an opportunity to build a big business. Just because we have a big fund doesn’t mean we have to invest a ton of money to get involved.

Josh: We average about 350k over the past few years, we participate in later rounds as well.

Jeff: 200k to 1.5M. We act a little like angels.

Arrington: This isn’t going where I wanted it to. I wanted to pit Josh and Jeff against the big guys, so I’ll just force the conclusion I wanted. I was hoping to get at my thought that it’s harder on the big guys now because earlier investors like Josh and Jeff are getting into the best deals first and getting big chunks of the company and then you guys have to really compete later on to get in on the investment.

Jeff: We have participated with the big guys on lots of our deals.

Arrington: Again, the facts aren’t helping me.

Michael: Why would Techcrunch allow the facts to get in the way of a good story?

Arrington: Whatever your next startup is, it sucks.

Jeff: Hold on let me Twitter this!

There were quite a few laughs at this point, and everyone is having a good time giving Arrington a hard time about Techcrunch.

Arrington: When Joe Kraus built Excite years ago he needed to raise a lot of money. Now he raised a very tiny angel investment and got Jotspot started, then took a little more money later on when he needed to scale. What if there is no later round where you bigger guys get in?

Dave: If you make a lot of money off of very small initial investments, it’s fine! We’re paid on successful outcomes.

Arrington: So, if your fund is 350 million, and you have 5 partners, you make a certain amount of money from your management fees. But if you don’t invest all of that big fund, you will have less money under management and make less in management fees.

Dave: It’s not so much about how much we’re managing, it’s more about investing the right amount in companies that end up doing well.

Josh: My first company took 5 million to get a product shipped, second company took 2.5 million, my third took 750k. Now I’m funding companies for a couple hundred K. Now that doesn’t get to scale, you’ll still need more money down the road.

Chris: Mike, your theory has a point. If you’re looking at that $50M sale to Yahoo or Google, you can get there with less money. If you’re looking at the really big ones like YouTube and Myspace, you need more money to get there. The bigger funds have to be more careful and select the ones that can get big.

Arrington: Brand name angels are Josh and Jeff, if they want to invest people take it. The big funds have tons of competition for deals, Geni had a crazy valuation. What do you do?

Dave: Haven’t you heard of Value Add?

Arrington: Do you agree you’re getting squeezed from both ends? You have Jeff and Josh at one end and more competition from deals, on the other end the IPO window is shut.

Arrington: Jeff, I know the return on your portfolio because we’re friends. And it’s amazing. Josh I can guess at yours and it’s also going to be good. It’s natural for you guys to say everything is fine. Chris, are you agreeing with me?

Chris: Yes, it’s hyper-competitive, it’s cyclical. We’re not going to do crazy deals, but you have to just hustle to find the right deals and make relationships with the right people who can make these ideas happen.

Jeff: We have no clue how these things are going to turn out. Of 20 companies, I have a 50-75% kill expectation. So 10-14 companies should fail. I’ve sold three and none have died, but we’ll see in 5-7 years.

Michael – It’s incredibly cyclical. Everyone gets bubbly when the exits happen. You can make the most money when the exits aren’t occurring.

Jeff: It’s also hard now to find the quality workers.

Michael: Google is talked about as the key acquirer, but they are also driving up the cost of engineering everywhere.

Arrington: True, but there are a lot of key people leaving Google that are fully vested and are either for hire or will be starting new companies. That’s exciting.

Audience: What competitive advantages are any of you building to differentiate? Incubators?

Dave: Incubators have failed before, and they continue to fail. We’re investing in a set of people coming together to build a business. The incubator model shares resources, so when the companies want to build out and scale they lose those resources right back again.

Arrington: So besides the fact you hate Incubators, is there anything to do?

Dave: We definitely share information across portfolio companies to try and help them solve common problems.

Josh: We have CEO meetings as well as an e-mail list to handle things like how do you find a good recruiter, what sort of options package do people get, and other common issues.

It then moved on to some random audience questions and ended up as a very laugh-filled session.

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For example, meet Jodi June Goosepants, a.k.a. Stinky Monkey, an American Staffordshire Terrier/Beagle. Jodi’s more of a photoblogger who likes tennis balls and is very thankful to her “parents” for rescuing her from the dog pound.

Or why not subscribe to Lucy’s blog. Here’s a sampling (just try and read it without a silly dog voice in your head!):

“When Mommy came home from work today she took Zoe and I to the back yard because it was sooooooooooooooooo nice outside. We started to run and then our new neighbors came home. We both jumped up on the fence to see who was over thereWell, I am off to nap on the couch until mommy and daddy say it is bedtime.”

Ah, the wisdom of dogs.

Dog webpages are free to set up and membership allows dog owners and dog owner wannabes and dog lovers and dog dog dog dog anything to network and talk about silly little sweaters and share photos and tell dog stories and chase tails and such. Was that a run on? Sorry, I got excited.

Extra-interested people can sign up for DogsterPlus for “more photos, more features, and more fun.” Crotch-sniffing is not required. There are discussions of pet insurance (huh?) and a new dog diary (like Lucy’s) featured daily.

But there is also lots of information on dogs that need homes and the website will include a classified section for those looking to acquire or get rid of a flea-bitten buddy. Even more interesting, Dogster.com has an arrangement with SimplyHired.com who helps them search for jobs that are “dog friendly.”

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SimplyHired called their latest effort a “pet project,” only there is just as much pet as there is project to the dog-friendly search. Google, Amazon, and many other companies have policies that allow dogs at work. The search at SimplyHired’s website lets job-seekers sift through over 4 million jobs at canine-compatible companies.

To Dogster CEO Ted Rheingold, it’s a doggone good idea:

SimplyHired said in a statement that a survey it conducted along with Dogster found 49 percent of their respondents willing to switch jobs if the new employer was a dog-friendly one. Employers should listen to that demand, as two-thirds of those surveyed said they would work longer hours if their pooch pal could be with them.

I wonder if our publisher will let me bring the mildly-crazed Pekingese to the office today. Probably not; I’m sure he doesn’t want to accidentally drop a pen in front of the dog and find out the hard way just how possessive a Pekingese can be over “his” stuff (Grrr).

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David Utter is a staff writer for WebProNews covering technology and business.