Image Recognition solved? Or, human powered?

It matters if you care about privacy.

I have to disagree. Depending on how long they've been around, maybe TagCow is at the point where they really should have typed out a basic privacy policy. But to say that it's "one of the first things" a company should consider is a lawyer-fearing mentality that can kill a company before it's launched; it's the kind of mindset that says the founders of a coffee shop company should be discussing whether to put "WARNING: VERY HOT" on the cups before they're talking about branding and business models.

Privacy and data storage are important issues that shouldn't be ignored, certainly. But I think when you're starting a new venture, the default assumption should be that your policies are going to be as user-friendly and standard as possible, until something arises that forces you to say, "Standard might not work for us. We need to take a look at the details."

As far as TagCow specifically is concerned, if TechCrunch's assumptions about it being human-powered are correct, then TagCow is probably trying to figure out a way of saying, "Your pictures will be shown to 3rd parties" (their tagging contractors) without making it sound like "your family photos are being spread around the internet like a coughing cold at summer camp". Best of luck to them.

A six-degrees of separation game. Tags in the same photo are a connection, and you have build paths from John Doe to Jane Fro, the longer the better - humans are worth more points than objects but both count.

Google for ESP game