Windsurf’s Rise, Fall, and the Lessons for your Company’s AI Strategy
Ray Poynter, 7 August 2025
This post is not a discussion of tech; it is a comment on strategy. Your organisation’s decision about the sort of AI companies it will depend on could have enormous consequences. This is the story of a company that, like Icarus, flew high but fell to earth, and the many customers whose AI plans were disrupted.
But first, who and what is Windsurf?
Windsurf was an AI-powered coding assistant, essentially an innovative software development tool that could help write and debug code automatically. Windsurf’s product enabled companies to build software faster by leveraging AI to handle the mundane coding tasks, allowing human developers to focus on more creative aspects. The tool could even tackle big chunks of the workflow autonomously, writing entire functions, fixing errors, and generating features without constant human micromanagement.
Why Businesses Embraced Windsurf
For many businesses and development teams, Windsurf’s promise was turbocharged productivity. The platform was known as an “agentic IDE” (Integrated Development Environment), meaning it had an AI “agent” that could take initiative in coding tasks. In practice, this meant developers could build applications by simply telling the AI what they needed, and the AI would generate most of the code. Early adopters reported remarkable results; in some cases, over 90% of a project’s code could be generated by the AI. Windsurf integrated with popular coding tools to fit into existing workflows, and it was model-agnostic; developers could plug in different AI models (from OpenAI, Anthropic, etc.) as needed. The value proposition was clear: save time on routine coding and eliminate tedious debugging, allowing engineers to focus on design and innovation. This resonated with startups, tech firms, and IT departments alike. By early 2025, Windsurf had attracted over a million users and thousands of company customers worldwide. Many saw it as a way to “strap on rocket boosters” for their software teams.
Rapid Rise and a $3B Courtship by OpenAI
Windsurf’s success didn’t happen overnight, but it was exceptionally fast. The company was founded in 2021 and rode the wave of interest in generative AI for coding. It quickly grew into one of the hottest AI coding startups. By April 2025, Windsurf’s annual recurring revenue had surged to about $100 million, up from roughly $40 million just a few months prior. Such explosive growth in enterprise subscriptions (reportedly 350+ enterprise customers by mid-2025 caught the attention of industry leaders. OpenAI (the creator of ChatGPT) entered talks to acquire Windsurf. By early May 2025, news leaked that OpenAI had agreed on an approximately $3 billion deal to buy Windsurf. For context, OpenAI was interested in Windsurf’s technology and its user base to bolster OpenAI’s efforts in AI-assisted coding. At the time, this potential acquisition was seen as a massive win for OpenAI’s strategy to compete with other coding assistants (like Microsoft’s GitHub Copilot and Amazon’s CodeWhisperer). It also validated Windsurf’s importance, a $3B price tag for a four-year-old startup underscored how critical AI coding tools had become.
However, that OpenAI deal never actually closed. The talks collapsed at the eleventh hour, reportedly due to complications with OpenAI’s biggest partner, Microsoft.
Google Swoops in for the Talent
What happened next was a whirlwind. As soon as OpenAI’s bid fell apart, a new suitor emerged, Google. In a move that startled the industry, Google’s DeepMind division hired Windsurf’s CEO (Varun Mohan), its co-founder (Douglas Chen), and several top researchers. Rather than an outright acquisition, Google executed what’s been dubbed a “reverse acqui-hire.” In this arrangement, Google paid around $2.4 billion for a non-exclusive license to Windsurf’s core technology, and in return, got to bring Windsurf’s key people on board at Google. Notably, Google did not buy the Windsurf company itself; Windsurf as a legal entity remained independent, free to continue operating and even to license its tech elsewhere. But effectively, Google carved out the brain of the startup. It secured the talent and the tech rights needed to incorporate Windsurf’s innovations into Google’s own AI products, without triggering the delays or scrutiny of a full acquisition.
From Google’s perspective, this was a strategic coup. AI-assisted coding is a hotly competitive field (Google is building tools like Gemini Code Editor to compete with GitHub Copilot and others), and having Windsurf’s expertise in-house could accelerate its efforts. But for Windsurf as a company, and its remaining employees and customers, this turn of events was destabilising. Essentially overnight, Windsurf lost its CEO, its founding technical leadership, and some of its best engineers to Google. Windsurf’s head of business, Jeff Wang, was left to step in as interim CEO and reassure everyone that the company could press on. Internally, Wang described the mood on the day of the Google news as “very bleak”, some staff were in tears, others worried about the future.
A Split Decision: Cognition Acquires What’s Left
With Windsurf’s top team gone to Google, the startup’s future hung in the balance for a brief period. But the saga wasn’t over. Just three days after Google’s hire, a smaller AI company called Cognition announced that it had signed a deal to acquire the rest of Windsurf. Cognition is itself an AI coding startup. In a joint statement in mid-July 2025, Cognition revealed it would buy Windsurf’s intellectual property, product, customer contracts, the Windsurf brand, and all remaining staff. Effectively, anything not already scooped up by Google was now going to Cognition.
For a moment, this acquisition appeared to be a lifeline for Windsurf’s customers and employees. Cognition’s leadership emphasised that they were acquiring a great product and a strong business, including $82 million in annual recurring revenue and a user base of 350+ enterprise customers, and “world-class people” from Windsurf. They publicly promised to take care of every Windsurf employee (with financial payouts and accelerated stock vesting for all) and to keep the team together moving forward. In announcements, Windsurf told its users that it would look after them. The plan was for Windsurf’s product to continue operating as-is in the immediate term, while Cognition gradually integrated Windsurf’s cutting-edge features into its platform.
This rapid sequence, OpenAI’s bid on Friday falling through, Google’s partial grab that weekend, and Cognition’s purchase by Monday, was a 72-hour rollercoaster for everyone involved. What started as a nearly $3B acquisition offer ended with Windsurf being essentially split between two different companies. OpenAI, the original suitor, was left empty-handed in the end.
Customers Left in Limbo
For Windsurf’s existing customers, these developments were jarring. Many enterprises had adopted Windsurf’s AI coding tools as part of their software strategy – some were even planning major projects or process overhauls around Windsurf’s platform. Suddenly, the company providing that technology no longer existed in its original form. Instead, its technology was partly licensed to Google (a company that those customers might or might not be partnered with), and a much smaller firm, Cognition absorbed the rest. This kind of upheaval raises real concerns for users: Will the product I rely on change or disappear? Who will support me now? Windsurf and Cognition tried to reassure clients that the service would continue uninterrupted, but the uncertainty was palpable. Within weeks, the situation started to unravel further.
By early August 2025, just three weeks after the acquisition, news emerged that Cognition had laid off about 30 former Windsurf staff and offered buyouts to roughly 200 others. In other words, a large portion of the Windsurf team was being let go or encouraged to leave. This suggested to some that Cognition’s real interest was primarily in Windsurf’s technology and customer contracts, rather than its personnel. The remaining Windsurf employees who chose not to take the buyout were faced with extremely demanding work conditions (an email from Cognition’s CEO allegedly mandated 6-day workweeks and 80+ hour weeks for those staying on). Such turbulence inevitably affects customers. Losing experienced staff can degrade the support and pace of improvement for the product that customers use. Some clients found that their account managers or support contacts were no longer available. Others had to wonder if the features they were looking forward to would ever materialise, now that the original creators were largely absent.
Industry observers weren’t entirely surprised by this turbulence; it fits a pattern seen elsewhere in the AI sector. When a startup’s core team gets a better offer and leaves, the company left behind often struggles. Cognition is under pressure to justify the purchase, and many people feel it is likely to fold Windsurf’s capabilities into its services as soon as possible. For Windsurf’s clients, this could mean eventual migration to Cognition’s platform or integration with Google’s tools, depending on how the licensing tangles sort out. In the short term, some customers may stick with what they have, while others might pre-emptively explore alternatives (such as the many competing AI coding tools from big players like Microsoft’s GitHub Copilot or startups like Cursor).
Is Relying on Smaller AI Players Too Risky?
Windsurf’s dramatic journey, from fast-rising star to being effectively disassembled by bigger fish, highlights a tricky question for businesses. How safe is it to build your AI strategy on any provider that isn’t one of the giants? On one hand, startups like Windsurf innovate quickly and offer cutting-edge solutions that can give adopters an edge. Many companies flocked to Windsurf because, at the time, it outpaced what larger platforms offered in flexibility and advanced features. On the other hand, as we’ve now seen, a promising young AI company can be here today and gone tomorrow – whether through acquisition, talent poaching, or strategic redirection. Windsurf’s customers ultimately saw their vendor of choice split apart in a matter of days, through forces completely outside their control. It’s a scenario that underscores operational risk: plans and workflows built around a niche AI product might suddenly need to be scrapped or reworked if a tech giant swallows up that product or ceases to operate independently.
In the rapidly consolidating AI industry of 2025, the biggest tech players (Google, Microsoft, Amazon, OpenAI, etc.) are in a fierce race to acquire technology and talent. They have the deep pockets to do deals like Windsurf’s, and this trend is likely to continue. For AI buyers and business strategists, the question “Should we trust a small AI vendor to be there for us next year?” has become very real. Windsurf’s fate suggests that even hugely successful startups can quickly change course if a larger company decides it wants what they have. So, if you’re a marketing or insights professional mapping out an AI strategy, it may be prudent to consider the stability and longevity of your partners. Is building your AI strategy on anybody except the biggest players too risky? It’s a question worth asking, as the Windsurf saga has shown how quickly the ground can shift. The answer isn’t black-and-white; innovation often comes from upstarts, but the risks of relying on a smaller AI provider are now painfully clear to those Windsurf customers caught in the fallout of this deal.
What do I do?
In my start-up, ResearchWiseAI, we are mostly dependent on the big players, such as OpenAI, Microsoft’s GitHub, and Amazon. We are using smaller, more agile services for some tasks, but not for our core backbone. When we use these more agile services, we use a layer of agnosticism, meaning we can switch suppliers easily if needed. For our prototyping, we simply use the best tool to hand, since they are not going to be part of the ongoing solution.