The key aspect of Google’s earnings yesterday was the don’t-call-it-a-stock-split stock split. I say “don’t-call-it-a-stock-split” because it technically wasn’t one, but it was effectively one. There will now be double the number of Google shares outstanding. It’s just that the shares won’t all be equal. Half of them will be of a different type of class, which is important when it comes to company governance. Those shares will carry no voting power.

I’m not going to pretend to understand all of the intricacies here. But I think Felix Salmon has the most interesting take on the news. He flat-out calls the maneuver evil.

He notes that for much of the 20th century, dual-class voting shares were illegal. And even when they came back in 1986, the idea was to have protections in place. The majority of independent shareholders (so, non-management and non-directors) were supposed to approve such a move.

But Google didn’t see to that. Instead, they appointed a small committee of independent directors (so, just those that don’t actually work at Google) to make the call on the proposal. And because that committee approved it, it will now go before all the shareholders for a vote in June. And, notably, that vote will include Google’s management.

As Google itself notes:

Given that Larry, Sergey, and Eric control the majority of voting power and support this proposal, we expect it to pass.

No shit.

And it’s worth noting that it still took Google’s own self-appointed committee of their own board members 15 months to make that call on this proposal.

Why did it take so long? Probably because they knew the decision would be controversial. And why is it controversial? Because it perverts the intent of the concept to the point that it’s still not clear that Google should be doing it.

So why bother with all of this and risk looking bad as a result? Because Google’s management wants to have their cake and eat it too. They want to be able to bring in new recruits and retain top employees with the glittering lure of stock options. But they want to issue them without diluting their own shares, and as such, their control of the company.

But as Salmon notes:

It’s worth putting this theoretical fear in perspective. Common shareholders currently have just 32.6% of the voting stock at Google, with Larry and Sergei Sergey between them controlling 57.7%. If Google doubled the number of common shares outstanding, the Troika still wouldn’t lose control. And in any case, as Steve Jobs has shown, you don’t need control of the stock to have complete control of the company.

The majority of Steve Jobs’ wealth did not come from Apple stock. It came from Disney stock, which he got after the sale of Pixar. Jobs actually owned a relatively small percentage of Apple when compared to other company founders. (Which is because he sold all but one share when he was booted from the company in the 80s and was only granted new options over time when he came back.) Despite this relatively “weak” position, Jobs was clearly in full control of Apple. 

But the Google guys must be looking at Facebook about to go public and seeing how much control Mark Zuckerberg will retain even after the IPO. He planned better. With seemingly every move Google makes now increasingly criticized from the outside, the thought of losing control of the company must scare the crap out of everyone there.

I think that fear is fair. And I think Google will be in a better position to avoid the pitfalls that larger companies often fall into if the founders can retain voting control. Not everyone is Steve Jobs.

The problem is the way Google is ensuring that the founders maintain this control. It sure seems shady, if not exactly “evil”.

But perhaps that’s appropriate given many of Google’s maneuvers over the past few years. The refrain is often the same. Shady, if not exactly “evil”. 

A few years ago, I got a frantic email one evening. It was from a young entrepreneur named Kevin Systrom. “Hey MG, I saw you signed up for Burbn…” is how it started. He was freaked out. Someone had told me about the service and the sign up wasn’t locked down. But Kevin did not want me to write about his fledgling idea just yet. We hopped on the phone. Of course I agreed to hold the story. I’d write when he was ready.

We broke a lot of news at TechCrunch over the years. But I was always happy about the way we treated entrepreneurs with their delicate plans. Big companies are different — they can take hits. Outing young companies before they’re ready: not cool. When in doubt, defer to the entrepreneur. Michael taught us well. 

Anyway, while I sat on the story of a hot new HTML5-based location app, I got to know Kevin and eventually his co-founder Mike Krieger. Really great guys. Idealists. Just insane enough to potentially change things. So when I saw the news this morning that Facebook was buying them for a billion dollars, I was beyond happy.

We weren’t investors — sadly, we came into existence too late — but screw that. This is just a great story about a great product, great founders, a great team, and great execution. And I feel sincerely happy for these guys because I was there pretty much the entire time watching from a distance.

Burbn, of course, eventually evolved into Instagram. Kevin and Mike watched how people wanted to use Burbn to share and saw an opening. Pictures. They decided to take it. I was one of the first users of Instagram. Number 28, if this is to be believed. I immediately knew it was the right way to go. 

A few weeks later, I believe Om broke the news of Instagram to the world. I was annoyed — I HAD BASICALLY HELD THE STORY FOR A YEAR — but I loved the app so much that I wrote a thousand word preview anyway. 

The commenters mainly took a shit on the app and the concept. Another photo-sharing app?!!! That’s why they’re commenters and not out there building things. 

A few weeks after that, the app launched. Adoption was natural. It was a thing of beauty. 

A few days later, the “another photo app” people looked like huge jackasses. Instagram wasn’t just a photo app. It was an application that was able to change the way people view the world around them. It was expression through image. It was a new form of communication.

I wasn’t a picture-taker. I became a picture-taker.

Instagram thrived because Flickr dropped the ball on mobile. Badly. Pictures on the desktop were interesting. Pictures from your mobile device are a thousands times more interesting. Instagram had perfect timing. The iPhone camera got very good. Instagram exploded.

A million users. 5 million users. Bieber. 10 million users. 20. 30. Android is going to push it to 50 million users in no time. 

People are looking at Facebook’s buy today and thinking “what the fuck?” I’m looking at it and thinking that Facebook is ingenious. They’re one of the few large companies that understands how to and when to acquire. You don’t buy at the peak. You buy on the ramp up to the peak. Instagram as it stands right now is awesome. It’s the tip of the iceberg for what they want to do. 

We’ll see if they can execute within Facebook or not. Mark Zuckerberg is saying all the right things. And again, they’ve done great with their acquisitions. I have faith. 

In some ways, this is bittersweet. Instagram is a not insignificant part of why I got into the venture capital side of things. I knew that I had a talent for picking companies that would do well, but Instagram was the first that I knew I had nailed from the get-go. By the time they had done their seed and A rounds, Kevin and I were talking about the potential of me doing this: finding the next Instagram. His thoughts helped steer me to where I am now.

I’ve talked before about the one company I wish I could have invested in (realistically) early on: Square. Instagram would be a close second. And today’s outcome proves the thought.

I know I’ve said this before, but it’s so easy to get cynical in today’s tech world. Uncapped note here, billion dollar acquisition there, IPO over there… At the end of the day, you have to bet on great entrepreneurs to do great things. You have to bet on 5 years from now, not today. You have to bet on the world evolving enough to be ready for what’s coming. 

It’s threading the needle. But it’s so goddamn exciting. That’s Instagram.

Congrats to Kevin, to Mike, to Instagram. A fantastic exit that we all hope is the beginning.