Did OpenAI just waste $3 billion on WindSurf, or could it have built the same using VS Code’s new open-source AI editor?

On May 6, OpenAI acquired AI coding startup WindSurf for $3 billion, its biggest deal yet. Less than two weeks later, Microsoft quietly open-sourced AI-native features in Visual Studio Code, making the core AI editor freely accessible and allowing forks like WindSurf (formerly Codeium) and Cursor to build directly on top of it.

Microsoft’s Monday announcement immediately sparked debate. Some argued that OpenAI should have waited just one more week—it could’ve built its own AI coding tool on top of VS Code’s new open-source AI framework and saved the $3 billion spent on acquiring WindSurf.

Posts on X, including one claiming “this kills Cursor and WindSurf’s valuations,” suggest that open-sourcing Copilot Chat may erode the proprietary edge of both WindSurf and Cursor, two high-profile VS Code forks.

In this piece, we’ll explore both sides of the argument: Was this a costly misstep, or a strategic masterstroke?

Background

On May 19, 2025, Microsoft made waves at its Build 2025 conference in Seattle, announcing that Visual Studio Code (VS Code) would become an open-source AI editor. The @code post on X confirmed that GitHub Copilot Chat—previously proprietary—would be open-sourced under the MIT license, with AI capabilities integrated directly into VS Code’s core. The move, aligning with VS Code’s “open, collaborative, and community-driven” ethos, sent ripples through the developer ecosystem.

Just days earlier, OpenAI finalized its $3 billion acquisition of WindSurf, a rising AI coding platform built on a fork of VS Code. The proximity of these events triggered an intense debate online: Did OpenAI just overpay for something it could’ve built for free?

The Case Against the Acquisition

“Why Buy What You Could Build?”

• VS Code Already Won: With millions of daily users, VS Code dominates the IDE market. Microsoft’s open-sourcing of Copilot Chat empowers anyone to build AI-enhanced tools on this already entrenched platform.
• OpenAI Should’ve Known: Microsoft owns 49% of OpenAI and has invested $13 billion. The idea that OpenAI had no visibility into this roadmap is questionable.
• Open Source Nukes Differentiation: Now that AI tooling is part of VS Code’s open-core, Windsurf’s advantage as a VS Code-based AI IDE faces significant headwinds.
• Was It Panic Buying? With Cursor valued at $9B and GitHub Copilot surging, OpenAI may have acted defensively to lock in users and data before the window closed.
• Could’ve Built Their Own: With Copilot Chat open-sourced under MIT, OpenAI had a clear path to build a GPT-4o-native editor—saving billions in the process.

The Case For the WindSurf Acquisition

“They Bought More Than Code”

• Windsurf Was Already Winning: Formerly Codeium, WindSurf had 800,000 daily active users, 1,000 enterprise customers (including Amazon, Meta, and Uber), and $40M ARR by May 2025.
• Time-to-Market Is Everything: Building a competing IDE from scratch—even on VS Code’s new framework—would take months or years. Meanwhile, competitors like Cursor and Copilot continue growing.
• Enterprise-Grade Features: WindSurf offered multi-model support (including Claude and GPT-4o), dynamic code refactoring, secure codebase management, and enterprise-ready integration. These aren’t trivial to replicate.
• Data, Users, and Revenue: The acquisition delivers not just tooling, but real-world code usage data, user feedback loops, and immediate enterprise traction—all critical for OpenAI’s broader LLM strategy.
• Missed Cursor, Got Windsurf: OpenAI had previously failed to acquire Cursor, which had $200M ARR and was valued at $9B. WindSurf became the next best strategic bet.
• It Wasn’t About the Fork: OpenAI didn’t acquire WindSurf for its VS Code base. It bought the ecosystem—established devs, enterprise contracts, and revenue to back it up.

Microsoft’s Timing and Its Ripple Effect

Microsoft’s announcement wasn’t about open-sourcing VS Code itself—it’s been MIT-licensed since 2015. What changed was the release of GitHub Copilot Chat under MIT, giving the developer community full access to extend, customize, or replace AI coding features.

This directly addressed long-standing frustration around closed components. It also opened the door for companies like OpenAI to build on top of VS Code, free of license restrictions.

But it came after OpenAI’s $3B check cleared.

Bigger Than the IDE

This isn’t just about VS Code forks. It’s about owning the AI developer experience—the workflows, data, and integrations that will shape software for the next decade.

While VS Code’s Copilot Chat open-source announcement empowers the community, it doesn’t replicate the proprietary features and traction WindSurf had already built. It also doesn’t offer OpenAI the same level of control, monetization, or integration.

As X user @14hous quipped, “Imagine creating a product so good you force VS Code to open source to keep market share.” Maybe Windsurf didn’t just lose its moat—it created one by forcing the rest of the field to adapt.

Final Thought

Could OpenAI have built its own tool using Microsoft’s open-source AI stack? Probably. But would it have had 800,000 users, $40M in ARR, 1,000 enterprise contracts, and real-world data to train its next LLMs? Not likely.

This wasn’t just a code editor acquisition. It was a high-stakes bet on velocity, distribution, and control in a fiercely competitive market.