The high costs and thin margins threatening AI coding startups
AI coding startups like Windsurf are bleeding cash, with negative gross margins driven by the high cost of advanced LLMs. Hype and rapid growth failed to offset pricey API fees from suppliers like OpenAI and Anthropic. Building in-house models can improve margins but demands huge investment. Fierce competition from established players like GitHub Copilot and Cursor compounds the challenge. Windsurf opted to sell, while Anysphere (Cursor) aims to build its own model and adjust pricing to manage escalating AI costs, betting that inference prices will eventually fall.