[retornam]

I'm skeptical about this VSCode fork commanding a $3 billion valuation when it depends on API services it doesn't own. What's their moat here?

For comparison, JetBrains generates over $400 million in annual revenue and is valued around $7 billion. They've built proprietary technology and deep expertise in that market over decades.

If AI (terminology aside) replaces many professional software engineers and programmers like some of its fierce advocates say it would, wouldn't their potential customer base shrink?

Professionals typically drive enterprise revenue, while hobbyists—who might become the primary users—generally don't support the same business model or spending levels.

What am I missing here?

[lolinder]

Part of what you're missing is that OpenAI needs to justify its own overinflated valuation. They raise money on the premise that an AI-native company can and will outcompete giant established players, so lowballing Windsurf would run counter to the narrative they're selling to their own investors.

[mdasen]

The article also doesn't say that it's $3B in cash that OpenAI is spending. They might be giving Windsurf $3B worth of OpenAI shares - paying an inflated value for Windsurf with their own inflated value.

OpenAI just had a fundraising round that put them at $300B. Maybe they're just giving Windsurf 1% of OpenAI. Maybe they're even giving less than 1% - if OpenAI was worth $300B at the end of March and $150B last October, maybe they're worth $400B now. Maybe Windsurf is getting 0.75% of OpenAI that's "valued" at $3B.

[worldsayshi]

So they are effectively blowing their own bubble?

[ergocoder]

JetBrains makes $400M in revenue and is 10+ years old. Cursor is 1 year old and makes $300M in revenue.

One is going to be valued at a much higher multiple than the other.

[retornam]

$400M in real revenue versus $300M in annual recurring revenue (ARR) are totally different things. Real revenue is money actually earned, while ARR just multiplies one month's subscription revenue ($25M) by 12, ignoring customer churn.

Startups love flashing ARR figures because "$300M ARR" sounds impressive, but without knowing churn rates, they might never actually collect that full amount.

JetBrains however collected real $400M in a year.

[ninetyninenine]

I feel jetbrains is squandering an opportunity here. Cursor is significantly easier to build then any IDE in the jetbrains ecosystem. The technology jetbrains is very hard to replicate. While the technology cursor uses should be trivial to replicate.

If jetbrains can combine there IDE technology with cursor technology, that would be ideal.

I think the problem is jetbrains tech is sort of already very biased in a certain direction and it's hard for them to pivot as fast into this new AI direction.

[samdjstephens]

Just consider what it fundamentally is: a company at the leading edge of a product category that has found absurdly strong technology/use-case fit, and is growing insanely fast.

Looking for a moat in the technology is always a bit of a trap - it’s in the traction, the brand awareness, the user data etc.

[lolinder]

> Looking for a moat in the technology is always a bit of a trap - it’s in the traction, the brand awareness, the user data etc.

Traction, brand awareness, and user data do not favor Windsurf over GitHub Copilot. The few of us who follow all the new developments are aware that Windsurf has been roughly leading the pack in terms of capabilities, but do not underestimate the power of being bundled into both VS Code and GitHub by default. Everyone else is an upstart by comparison and needs some form of edge to make up for it, and without a moat it will be very hard for them to maintain their edge long enough to beat GitHub's dominance.

[supportengineer]

High valuations for companies you've never heard of with no moat - it comes down to cronyism/nepotism/fraud.

[quantadev]

Yeah it seems like there's really no "adult supervision" at all in OpenAI. This purchase was a panic move. Windsurf would be worthless without the AI. Probably OpenAI knows that AI is now a commodity technology and no longer a space they can monopolize so they're just trying to get off a ship that's sinking, and find some viable path to having a tech that doesn't ultimately depend on OpenAI even having a monopoly any longer.

[blueboo]

OpenAI needs a product team

hiring is hard

it's a high-functioning team swimming in contemporary design and eng practices

code is emerging as an important battleground

OpenAI has the $$$

[owebmaster]

It is ironic that the company said to be cooking AGI is acquihiring software engineers because they can't develop it in-house.

[bufferoverflow]

I bet they can hire best minds in the world for a fraction of $3 billion.

[goodluckchuck]

If OpenAI just provides AI, then the various IDEs development wrappers / IDEs / low-code etc. can collectively bargain against OpenAI for low rates. If OpenAI has an alternative, then they can charge higher rates for all plugins/ etc. and give the market an alternative.

[retornam]

If enterprises require fewer software engineers, where will the market for IDE development wrappers come from?

[arthur-st]

They have a healthy enterprise customer base, and an engineering team that clearly knows how to work with power users (which OpenAI is bad at).

[shortrounddev2]

> What am I missing here?

That AI is in a bubble akin to the crypto craze from a few years ago, and the valuation of these companies is divorced from their underlying business fundamentals

[globnomulous]

> If AI (terminology aside) replaces many professional software engineers and programmers like some of its fierce advocates say it would, wouldn't their potential customer base shrink?

This is such a good point. The best reply available to the AI hype-men would probably be that LLMs "democratize" coding and therefore that even more people will use IDEs in the future, but that sounds like BS to me -- not unlike AI/hype itself.

[bwfan123]

indeed, and that is why you see adobe declining, because, their customer base is shrinking even as they add AI into their tools.

[__loam]

Well you see Jetbrains is a European company unlike the super special boys running an inherently more valuable American company.

[nailer]

Steel man: Windsurf own the customer relationship. The models are just generic interchangeable services they use for processing.

Realistically: I don’t know how many users windsurf actually has and I never actually met anyone that uses them. Whereas Cursor AI took a huge percentage of the VS code users I know in real life.

[seunosewa]

I use Windsurf. It had the smoothest agentic experience when I subscribed. I think still does.

[Illniyar]

Cursor purports 200m in projected yearly revenue. With some months having 40% month over month growth. The trajectory is vastly different.

Whether or not it's justified is a different matter, but for startups valuations are more about potential then current performance.

[retornam]

Cursor purports $300M in annual recurring revenue (ARR) but stays silent on churn.

They made $25M from subscriptions one month, took that number, multiplied it by 12, arrived at $300M and everyone has been running with that line without ever asking what their churn looks like.

They could have churned $24M the next month, ask yourself why they are silent on churn if they are doing so well.

[hodder]

"I'm skeptical about this VSCode fork commanding a $3 billion valuation".. Nothing to be skeptical about. The market has spoken. It was worth 3b to OpenAI. Companies arent worth a vague notion of what "value" someone in an armchair thinks they might be worth, they are worth what people are willing to pay, and OpenAI paid.

[TiredOfLife]

One example is that VS Code Copilot autocomplete is still behind what Codeium (now Windsurf) was 1.5 years ago.

[__loam]

Is there an actual measure for this besides contrived benchmarks and vibes?

[animitronix]

They have no moat, Cursor does the same stuff. Microsoft's moving to kill all of these anyway and has added agent mode to copilot.

OpenAI would have gotten more value by setting that 3 billion on fire, at least it would have powered the data center for a little while.

[quantadev]

It's about popularity. OpenAI lost their monopoly now that there are many competitors so they're just trying to make a move to purchase "relevance". They're just trying to buy their way into the cool kids club, to remain relevant to at least a large number of kids.

[empath75]

> when it depends on API services it doesn't own

It now owns the API services.

[XCSme]

OpenAI buying a company that is dependent on their competitor.

[djha-skin]

Did powered table saws replace carpenters?

[ninetyninenine]

Yes. That's the problem. You think the answer is no, but the answer is actually yes.