When I tried to think of something that would effectively compete with Facebook, I actually thought of something very similar to what Google just introduced. Fine-grained controls for specific groups. For example, you really don't want to start a fight with your crazy sister about a particular image of your kid eating sweets. Your coworkers really don't need to know you went on a date last Thursday or that your dad has the flu.
Unfortunately, Google has a terrible reputation for privacy so launching their service with that emphasis is borderline silly.
Also fun: look up "google privacy" on Google's search engine and then Bing's.