What began as a daring transfer by OpenAI to snap up one of many fastest-rising AI coding startups has ended with Google strolling away with the prize. OpenAI has formally pulled the plug on its $3 billion acquisition of Windsurf—previously referred to as Codeium—after inner battles over who would management the startup’s tech, The Verge reported.
On the middle of all of it? Microsoft’s far-reaching rights to OpenAI’s mental property. The information comes simply two months after OpenAI agreed to acquire AI coding startup Windsurf for $3 billion, marking its greatest deal but.
OpenAI’s Windsurf Deal Falls Aside — Now Its CEO Is Headed to Google
As a substitute of turning into a part of OpenAI, Windsurf’s CEO Varun Mohan and a number of other key staff members are actually headed to DeepMind, Google’s AI lab, to supercharge its Gemini coding efforts.
“OpenAI’s deal to purchase Windsurf is off, and Google will as a substitute rent Windsurf CEO Varun Mohan, cofounder Douglas Chen, and a few of Windsurf’s R&D workers and convey them onto the Google DeepMind staff, Google and Windsurf introduced Friday,” The Verge reported.
In an announcement, Google spokesperson Chris Pappas advised The Verge: “Gemini is without doubt one of the finest fashions obtainable, and we’ve been investing in its superior capabilities for builders. We’re excited to welcome some high AI coding expertise from Windsurf’s staff to Google DeepMind to advance our work in agentic coding.”
“We’re excited to be becoming a member of Google DeepMind together with a number of the Windsurf staff,” Mohan and Chen mentioned in an announcement. “We’re pleased with what Windsurf has constructed over the past 4 years and are excited to see it transfer ahead with their world-class staff and kick-start the following part.”
OpenAI wished Windsurf. Microsoft difficult it.
Windsurf, based in 2021 by Varun Mohan and Douglas Chen, constructed a loyal developer base with its AI-native coding platform. The corporate’s flagship product, Windsurf Editor, helps enterprise-grade workflows and allows what co-founder Andrej Karpathy as soon as known as “vibe coding”—a sort of low-friction, AI-driven software program creation course of that’s reshaping how code will get written.
By early 2025, Windsurf was not flying underneath the radar. After elevating $150 million in a spherical led by Common Catalyst at a $1.25 billion valuation, Windsurf’s momentum had OpenAI circling. A deal value round $3 billion was on the desk, and it appeared like OpenAI was able to go huge to compete with GitHub Copilot, Cursor, and Google’s Gemini Code.
However OpenAI had an issue: Microsoft.
The tech large—one in every of OpenAI’s largest traders with over $13 billion poured in since 2019—has rights to a lot of OpenAI’s IP underneath a sweeping 2023 settlement. That features entry to mannequin weights, code, and sure, any IP OpenAI positive factors by means of acquisitions. On this case, Windsurf’s know-how would fall into Microsoft’s lap by default.
That didn’t sit effectively with OpenAI—or Windsurf. Mohan reportedly made it clear he didn’t need Microsoft anyplace close to the startup’s tech, given GitHub Copilot’s place as a direct competitor. In response to The Wall Road Journal, OpenAI executives even floated the thought of accusing Microsoft of anticompetitive habits, hoping to renegotiate the IP phrases or get out of the settlement altogether.
Microsoft, for its half, hinted it is perhaps keen to make an exception for Windsurf’s IP in a revised deal. However that wasn’t sufficient. Negotiations broke down, and OpenAI’s exclusivity window expired.
That’s when Google made its transfer.
Google picks up the items
As OpenAI walked away, Google pounced. Mohan and a number of other Windsurf R&D leads are actually headed to DeepMind, the place they’ll deal with boosting Gemini’s coding capabilities. The timing couldn’t be higher for Google, which is pushing onerous to shut the hole in AI-driven developer instruments. Windsurf’s expertise with large-scale, real-world codebases offers Google a stable enhance in an area that’s heating up quick.
Bother within the OpenAI–Microsoft relationship
This saga is greater than a missed acquisition—it factors to deeper cracks within the OpenAI–Microsoft partnership. Whereas Microsoft has helped bankroll OpenAI and hosts its fashions on Azure, the 2 firms more and more appear like rivals. GitHub Copilot instantly competes with ChatGPT’s coding options, and OpenAI has been exploring its personal software program growth instruments that would eat into Microsoft’s territory.
There’s additionally the matter of OpenAI’s company construction. The corporate is making an attempt to transition from a capped-profit mannequin to a public profit company to boost extra capital and doubtlessly go public. However Microsoft, with its 49% profit-sharing rights (as much as a $130 billion cap), has veto energy. OpenAI has proposed swapping Microsoft’s revenue share for a one-third fairness stake—however there’s no deal but.
Folks on X aren’t ignoring the strain. One put up summed it up this manner:
“Microsoft constructed OpenAI’s infrastructure, gave it $10B, let it promote to rivals and now may kill its for-profit plans over IP rights and AGI semantics. Massive tech doesn’t do charity.”
Whether or not or not that put up hits the mark, it displays a rising sentiment: the steadiness of energy between these two giants is something however steady.
What This Means for Everybody Else
Google’s achieve is tough to disregard. With Windsurf’s high expertise now inside DeepMind, Gemini simply bought a significant enhance. OpenAI, in the meantime, will doubtless double down on constructing related instruments internally or look elsewhere for acquisitions.
Microsoft’s technique is trying more and more difficult. It has to guard its funding in OpenAI whereas staying aggressive with its personal AI merchandise. However pushing too onerous on IP rights dangers driving OpenAI into the arms of rival cloud suppliers like CoreWeave or Oracle, or additional into Google’s orbit.
One aspect impact of this fallout? It could have helped keep away from a regulatory headache. The FTC has been watching AI acquisitions intently, and a $3 billion deal would’ve triggered extra scrutiny round competitors and market dominance.
Builders, however, are watching all of this play out with blended emotions. As extra instruments like Copilot, Cursor, and Windsurf emerge—and as huge gamers battle for management—the way forward for AI coding could turn out to be extra fragmented. That’s already fueling requires open requirements just like the Mannequin Context Protocol to assist hold platforms interoperable and stop vendor lock-in.
Remaining ideas
OpenAI wished Windsurf, however Microsoft’s grip on IP made that too messy. Now Google has what may’ve been OpenAI’s greatest acquisition, and the race to dominate AI coding is much more aggressive.
What occurs subsequent—whether or not OpenAI rebuilds, Microsoft backs off, or Google runs with the win—may form who leads the following period of AI-powered software program. One factor is obvious: the stakes simply bought increased.
🚀 Need Your Story Featured?
Get in entrance of hundreds of founders, traders, PE companies, tech executives, determination makers, and tech readers by submitting your story to TechStartups.com.
