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Unpacking the $5 Billion Power Struggle for a Tiny AI Firm

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How OpenAI Lost, Google Hedged and Cognition AI Bought AI Coding Start-Up Windsurf

Rahul Neel Mani
(@rneelmani)

•
July 15, 2025    

Unpacking the $5 Billion Power Struggle for a Tiny AI Firm
The CEO of Windsurf AI ended up at Google while his employees landed at Cognition AI in a high-stakes acquisition. (Image: Shutterstock)

As with any story about artificial intelligence start-ups, the acquisition of Windsurf AI happened at lightning speed. In just a couple of weeks, major Silicon Valley players took a close look at the four-year-old AI-assisted coding vendor, and ultimately Google and Cognition AI ended up with pieces of the company.

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How It All Unfolded

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The buzz over Windsurf as an M&A target began in April when OpenAI made an acquisition offer, reportedly valuing Windsurf at $3 billion. It was a prime opportunity for OpenAI to increase its investment in AI-assisted coding.

Windsurf has developed one of the most advanced AI-powered coding environments including an Integrated Development Environment, or IDE, integrated with large language model workflows. The acquisition would have expanded OpenAI’s growing influence beyond language and image models into the vibrant software developer community.

But the deal fell through, most likely because of intervention from Microsoft, which raised concerns about Windsurf’s dependence on Anthropic’s Claude models and the impact on Azure-compatible infrastructure and intellectual property rights. The collapse of the deal was a setback for OpenAI and sparked speculation about how much Microsoft’s governance influence might be limiting OpenAI’s ability to act quickly in key markets.

The gap left by OpenAI’s hesitation was short-lived. Within hours, Google, via its DeepMind division, carried out a $2.4 billion reverse-acquisition. This allowed Google to license Windsurf’s core technology while acquiring its R&D team and senior leadership including CEO Varun Mohan and co-founder Douglas Chen. It was a smart move. Google didn’t take on Windsurf’s product, brand or customers, but simply absorbed the team behind it.

The drama further unfolded on Monday when Cognition AI, famous for its autonomous coding agent Devin, stunned the world by announcing the acquisition of all remaining assets of Windsurf. This included full ownership of the Windsurf IDE, its proprietary IP, approximately $82 million in ARR, more than 350 enterprise clients and the 250-person, highly skilled team that was left behind after DeepMind hired the senior leadership. While Google was on the defensive, Cognition was on the offensive. It viewed the deal from a product strategy perspective, aiming to integrate Windsurf’s infrastructure into a comprehensive developer experience alongside Devin.

OpenAI’s Missed Moment and Microsoft’s Shadow

OpenAI’s failure to secure the Windsurf deal has sparked outrage, and the industry is abuzz with discussions about its relationship with Microsoft. While Microsoft’s initial $10 billion investment in OpenAI was essential for its growth and commercial expansion (mainly through Azure and enterprise integrations), the partnership has now begun to hinder its growth. Microsoft’s stance on IP and ecosystem control seemed to outweigh OpenAI’s broad vision for the future.

This deal has raised important questions. Can OpenAI compete freely if it’s most strategic decisions are being vetoed by an investor? With rivals such as Google, Amazon and others aggressively expanding their developer-facing stacks, OpenAI may need to reconsider how much strategic independence it truly has from Microsoft and how that can be nullified at such critical junctures.

Google Gained the Talent, But Not a Platform

Google’s reverse-acquihire strategy was an unconventional and defensive move. But it appears to be carefully planned. By hiring Windsurf’s leadership and top engineers and securing a license to its core IP, DeepMind has effectively eliminated Windsurf as a future competitive threat while strengthening its own Gemini Code Assist and AlphaCode projects. The value of top-tier AI engineering talent cannot be overstated, especially as the generative AI infrastructure domain struggles with a talent shortage.

Still, Google faces a unique challenge: how to turn the acquired Windsurf talent into a cohesive product offering. It did not develop the IDE or the customer base, so it must rebuild those components from scratch. What if DeepMind fails to produce a compelling product soon? That could mean Google’s $2.4 billion investment – a costly insurance policy might be wasted.

Cognition’s Power Move: Full-Stack Developer AI

In stark contrast to the piecemeal approaches of OpenAI and Google, Cognition AI operated with greater clarity. By acquiring all the remaining assets of Windsurf, it now owns both the agent (Devin) and the workspace (Windsurf IDE). This enables Cognition to develop a unified platform supporting both autonomous and collaborative coding workflows. It also establishes Cognition as the first serious contender to provide an AI-native development experience that is not just reactive but also generative, combining real-time IDE capabilities with agent-driven automation. With Windsurf’s commercial contracts, revenue and developer loyalty now part of its portfolio, Cognition has a strong foundation to expand from.





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    References:

    "Cybersecurity Market, By Component (Hardware, Solution, Service), By Security Type, By Solution, By Application (IT & Telecom, Retail, BFSI, Healthcare, Defense & Government, Manufacturing, Energy, Others), By Region Forecast to 2032". Www.Emergenresearch.Com, 2023, https://www.emergenresearch.com/industry-report/cyber-security-market. Accessed 25 May 2023.

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    Cyber Insurance: An Essential Safety Net

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    Coverage Tailored to Your Business

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    The Rising Importance of Cyber Insurance

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    Cyber Insurance - An Investment Worth Making

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    PSL’s Easy Guide to Understanding Cybersecurity

    The world of cybersecurity can often feel like a maze of technobabble and obscure acronyms. Yet in an era where our lives increasingly depend on digital infrastructure, it's important to have a basic understanding of the terminology involved. Learning about cybersecurity can help you avoid common mistakes and limit the chance of becoming a victim of these crimes.

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    1) Cybersecurity

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    2) Malware

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    Virus

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    Worm

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    Trojan

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    Ransomware

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    Spyware

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    3) Phishing

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    4) Firewall

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    5) VPN (Virtual Private Network)

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    6) Encryption

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    7) Two-Factor Authentication (2FA)

    2FA is a common security process in which users must provide two different authentication factors to gain access to an account. For example, in addition to a password, you might also need to enter a code sent to your phone.

    8) Darknet/Dark Web

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    9) Data Breach

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    10) Botnet

    A botnet uses a group of private computers that are unknowingly infected with malicious software and are controlled as a group to perform various tasks. Many times botnets are created to send out spam emails or carry out Distributed Denial of Service (DDoS) attacks.

    Closing Thoughts

    Understanding cybersecurity is not just for the tech-savvy; it's for everyone. We are all potential targets for cyber threats, and comprehension of basic cybersecurity terminology can make a significant difference in safeguarding ourselves and our digital assets.

    Employing cybersecurity measures also helps to keep your digital data safe. This might include using a VPN, enabling two-factor authentication, or simply being wary of suspicious emails to prevent phishing attacks.

    Ultimately, it's not necessary for everyone to be a cybersecurity expert, but a basic understanding of the key terms can be an empowering first step in better securing your digital life. This newfound knowledge can provide you the confidence to navigate the online world with more safety and assurance.