[OxfordOutlander]

It is a talent and a distribution play. Talent: obvious.

Distribution: OpenAI believes the marginal token they sell will be accretive to their bottom line, so the goal then is to deliver as many tokens as possible. Windsurf already has 1k+ enterprise logos and allegedly millions of downloads. 2 m tokens × $0.00001 gross / token = $20/seat/mo; if windsrf runs 500k seats, oai books $120 m/yr gross @ 90% margin.

I saw a similar dynamic play out in the UK with Pub (bar) companies. By mid-2000s, the major players were failing. Margins were nearly zero, thanks to rising costs, and securlar decline in demand, plus they had too much expensive term debt.

But they represented profitable sources of distribution for the beer makers. So Heineken went on a buying spree. They didn't care about making money from the pubs themselves and were happy to run them break-even. This is because they then had a controlled channel of distribution for their beer (and they made a profit on every pint they shipped).

The switching costs are very different here, and the market is still so nascent. It is a thin product and vscode‑copilot can catchup. But 1% of enterprise value ($3bn of $300bn) is not a lot to gamble on owning the #2 horse in the most promising AI end market today.

[theahura]

I mention distribution in the post, and reasons to be skeptical of that as the primary driver (though I agree that may be the case)

Re talent, I'm not sure how big windsurf is, but aren't these teams generally quite small? $3b for a small team still seems quite high, especially since (afaik) their core area of expertise is more in UX and product than in ml research. That's not to say that UX and product aren't worth acquiring, just that the price tag is surprising if that's the primary justification.

[OxfordOutlander]

Given Sam recently said he thinks consumer is going to be the valuable path, perhaps it is not too much to pay for a great ux/product team

"Ben Thompson: What’s going to be more valuable in five years? A 1-billion daily active user destination site that doesn’t have to do customer acquisition, or the state-of-the-art model?

Sam Altman: The 1-billion user site I think."

[benjaminwootton]

What’s the net margin? Is anyone making money on inference yet?