AI coding startups like Windsurf and Anysphere (Cursor) face challenges due to the high costs associated with using large language models (LLMs). Windsurf, after failed acquisition talks with OpenAI, was eventually sold off in parts after facing negative gross margins due to the expense of running its AI coding product. The most direct solution involves building proprietary models to cut supplier costs, but this is capital intensive.
Anysphere, the maker of Cursor, is also experiencing margin pressures despite its rapid growth and $500 million ARR. They are exploring building their own model and have adjusted pricing to reflect increased LLM costs. The article highlights the competitive landscape, suggesting that user loyalty is not guaranteed if superior tools emerge. Windsurf's founders and key employees ultimately joined Google after a deal that led to a $2.4 billion payout.
Other AI coding tools like Replit, Lovable, and Bolt also rely on model makers, indicating the broader industry's reliance on LLM providers and the struggle to achieve profitability.