OpenAI's plan to acquire AI coding startup Windsurf ended in disaster – here’s how the deal fell apart

Cognition has confirmed plans to acquire Windsurf just days after a rumored $3 billion buyout attempt by OpenAI fell through and the AI coding startup's CEO was poached by Google.

In May this year, OpenAI was reported to be on the cusp of purchasing Windsurf, formerly known as Codeium. Windsurf offers tools such as Autocomplete, which suggests code while software engineers type, and Search, which helps find bits and pieces in a repository using natural language.

Last week, the long-rumored deal fell through amid reports that one cause was OpenAI's ongoing tension with Microsoft. In its place, Google stepped in with a licensing deal and to poach key staff.

Days later, Windsurf and Cognition jointly announced the latter would acquire the sought-after AI startup. Financial details of the deal weren't immediately revealed, but Cognition CEO Scott Wu said in a blog post that the acquisition includes Windsurf's IP, product, trademark, business, and talent.

Windsurf's new interim CEO, Jeff Wang, said it was a "really volatile time at Windsurf", but added: "Despite the turbulence, so much of what makes us great is intact."

Inside the Cognition acquisition

Cognition is perhaps best known as the creator of Devin, which it claimed was the world's first autonomous software engineer — though critics noted plenty of flaws with the $500-a-month system at its launch earlier this year.

Wang said pairing Cognition's agents with Windsurf's AI-supported integrated development environment (IDE) was the "perfect combination of products", and suggested it would enable AI to take over more coding, helping support everyone from vibe coders to large enterprises.

"Working side by side, we’ll be able to let engineering teams plan a task in Windsurf aided by Devin’s deep codebase understanding, delegate chunks of work to a team of Devins, and tackle the hardest parts yourself in Windsurf with features like Tab and Cascade," Wang said.

"Then it seamlessly gets stitched back together all within the same environment. That’s the future we will now create together."

"This combined agent + IDE, along with everything else to come, will be a fearsome combo,” he added.

Cognition's Wu said Windsurf will continue to work as it had been previously while Cognition focuses on developing Devin.

"Over the coming months, we’ll be investing heavily in integrating Windsurf’s capabilities and unique IP into Cognition’s products," he said.

Google’s talent scouting bombshell

Last week, before the Cognition deal was announced, Google confirmed it paid $2.4 billion for licensing rights and to poach a small number of Windsurf staff.

This included a portion of the R&D team, but also CEO Varun Mohan and co-founder Douglas Chen. Jeff Wang, previously head of business, took over as interim CEO.

"We’re excited to welcome some top AI coding talent from Windsurf’s team to Google DeepMind to advance our work in agentic coding," Google said in a statement sent to journalists.

Windsurf explained in a blog post that the software it was building "aligned quite well" with other companies' products, but admitted there are now many different solutions outside of Windsurf to help support software development.

"Given the rapid pace of innovation, we see an advantage to double down our focus on the enterprise problems, which has long been our primary focus, and we will be continuing to devote resources to taking the wide range of product innovations in the broader market and making them work for enterprise workloads, the most impactful workloads to society," the company said.

The deal with Google will help "kick-start this next phase."

Tough times at OpenAI

The failed deal between OpenAI and Windsurf was reportedly impacted by the AI firm’s tensions with major investor Microsoft, which have been rumbling on in the background over the last few months.

Microsoft was an enthusiastic backer of OpenAI, with an initial $1bn investment in 2019 that has since totaled $13bn. Relations between the two firms appear to have become frayed in recent months.

Earlier this year, Microsoft began using a wider range of AI models in 365 Copilot beyond OpenAI's systems, and the once exclusive relationship opened up to allow OpenAI to work with other infrastructure partners.

Last month, reports suggested the relationship had soured further, with a report in the Wall Street Journal claiming "tensions are reaching a boiling point".

According to sources, OpenAI execs were considering accusing Microsoft of anti-competitive behaviour and Microsoft has reportedly considered pausing negotiations.

The disagreement appears to center on OpenAI's attempts to shift away from its existing non-profit model, how much control Microsoft has over OpenAI's compute resources, and even the access Microsoft would have gotten to Windsurf's IP had that deal gone through.

Another key aspect of the dispute appears to center on a clause in the contract between the two companies over what happens if OpenAI achieves artificial general intelligence (AGI).

If OpenAI achieves that perhaps impossible milestone, then Microsoft's access to its models will automatically end. However, that raises the question of how to define AGI for the purposes of that clause, with Microsoft worried — according to a Wired report — that its partner will pull the plug on its model access early.

CEO Sam Altman has been highly vocal about the company’s push to achieve this elusive goal, going so far as to predict AGI’s arrival this year. On the other hand, Microsoft CEO Satya Nadella has called the idea of AGI "nonsensical benchmark hacking".

Running parallel to all of this is the brewing war for AI talent in Silicon Valley, with Meta poaching OpenAI staff by throwing hundreds of millions of dollars in pay at top talent.

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