On May 6th, Openai acquired AI Coding Startup Windsurf for $3 billion. This is still the biggest deal. Within less than two weeks, Microsoft has quietly open sourced AI-Native functionality in Visual Studio code, allowing Core AI Editor to be freely accessible, and forks like Windsurf (formerly Codeium) and cursors can be built directly on top of it.
Microsoft’s Monday announcement prompted controversy. Some argue that Openai should have only waited another week. We built our own AI coding tools in addition to the new open source AI framework for VS Code, saving us $3 billion on getting Windsurf.
A post to X, which includes what claims “this kills cursors and windsurf ratings,” suggests that open-sourcing co-pilot chats could erode their own edges of both windsurfs and cursors.
In this article, we explore both sides of the discussion. Was this a costly misstep or a strategic master stroke?
background
On May 19, 2025, Microsoft made waves at the Build 2025 conference in Seattle, and announced that Visual Studio Code (VS Code) would become an open source AI editor. In the @code post on X, we confirmed that github Copilot Chat (preferably own chat) is open source under the MIT license and that AI features are integrated directly into the core of VS code. The move has ripped through the developer ecosystem, in line with the VS Code’s “open, collaboration, and community-driven” spirit.
Just a few days ago, Openai completed its $3 billion acquisition of the rising Windsurf, an AI coding platform built on the fork of VS code. The proximity of these events sparked intense online debate. Did Openai overpay for what you could build for free?
Litigation against the acquisition
“Why buy something you can build?”
VS Code has already won: With millions of daily users, VS Codes dominates the IDE market. Microsoft’s Copilot Chat open sourcing allows anyone to build AI-enhanced tools on this already established platform. Openai should know: Microsoft owns 49% of Openai and invests $13 billion. The idea that Openai had no visibility into this roadmap is questionable. Open Source Nook Differentiation: The advantage of Windsurf is that, as AI tools are part of the open core of VS code, VS code-based AI IDEs face serious headwinds. Was it a panic purchase? The cursor may have acted defensively to lock users and data before the window closed as Github co-pilot spiked. You could have built it yourself. With CopilotChat open sourced under MIT, Openai had a clear path to building a GPT-4O native editor, winning billions of dollars in the process.
In the case of Windsurf acquisition
“They bought more than a code.”
Windsurf had already won. Previously it was Codeium, Windsurf had 800,000 active users daily, 1,000 enterprise customers (including Amazon, Meta and Uber), and $40 million by May 2025. Time to the market is all about it. Meanwhile, competitors like Cursor and Copilot continue to grow. Enterprise Grade Features: Windsurf has provided multi-model support (including Claude and GPT-4O), dynamic code refactoring, secure code base management, and enterprise-ready integration. These are not easy to replicate. Data, Users, and Revenue: Acquisitions provide not only tools, but actual code usage data, user feedback loops, and immediate enterprise traction. This is important for OpenAI’s broader LLM strategy. Missed cursor, Got Windsurf: Openai had previously failed to get Cursor. Windsurf has become the next best strategic bet. It wasn’t about the fork: Openai didn’t get Windsurf in the VS codebase. I bought the ecosystem. This has been backed up developments, enterprise contracts and revenues that have established it.
Microsoft’s timing and its ripple effects
Microsoft’s announcement is not about the open sourcing vs. code itself, but has been in the MIT license since 2015. The change in the release of GitHub Copilot Chat under MIT has made it fully accessible for the developer community to extend, customize or exchange AI coding capabilities.
This directly addressed years of frustration with closed components. It also opened the door for companies like Openai to build on VS code with no license restrictions.
But that came after Openai’s $3 billion check was cleared.
Bigger than the IDE
This isn’t just about chord forks. This is to own an AI developer experience. This is the workflow, data and integration that will shape the software for the next decade.
The announcement of VS Code’s Copilot Chat Open-Source empowers the community, but it doesn’t replicate the unique features and traction that Windsurf has already built. It also does not offer Openai the same level of control, monetization, or integration.
Imagine X user @14Hous “Imagine creating a product that forces code to force open source to maintain market share.” Maybe Windsurf wasn’t just losing the moat. It was created by forcing the rest of the field to adapt.
Final thoughts
Could Openai build its own tools using Microsoft’s open source AI stack? probably. But did you have 800,000 users, $40 million ARRs, 1,000 enterprise contracts, and real-world data to train your next LLMS? The chances are low.
This was more than just getting a code editor. It was a high stakes bet on speed, distribution and control in a highly competitive market.
🚀Want to share the story?
Submit your stories to TechStartUps.com in front of thousands of founders, investors, PE companies, tech executives, decision makers and tech leaders.
Please attract attention
Source link
