How Microsoft 'killed' OpenAI's $3 billion acquisition of WindSurf, making Google the 'big winner'

OpenAI’s $3 billion agreement to buy the AI coding startup WindSurf has fallen apart. The highly-anticipated acquisition deal between artificial intelligence powerhouse OpenAI and AI coding startup Windsurf. OpenAI had reportedly been close to finalizing the deal to acquire Windsurf, formally known as

Exafunction Inc.

, with a signed letter of intent and investor payout agreements (waterfall agreements) already in place. The acquisition was even nearing an announcement in early May, according to sources familiar with the discussions. However, an OpenAI spokesperson has confirmed that the exclusivity period for their offer has lapsed, leaving Windsurf free to explore other opportunities.In a swift turn of events, Alphabet Inc's Google has stepped in, striking a deal worth approximately $2.4 billion to acquire top talent and licensing rights from Windsurf. This move comes hot on the heels of the collapsed

OpenAI acquisition

.Google announced on Friday, July 11, that it is bringing Windsurf Chief Executive Officer Varun Mohan and co-founder Douglas Chen, along with a small team of staffers, into its DeepMind artificial intelligence unit. While the company declined to disclose the specific financial terms, it clarified that the agreement does not involve taking an equity stake in Windsurf itself. This development marks a significant strategic gain for Google in the competitive AI landscape, securing valuable expertise and technology that had been hotly contested by its rivals.

Microsoft tensions behind OpenAI-Windsurf deal collapse

A significant factor in the unraveling of the OpenAI-Windsurf deal appears to be friction with kMicrosoft Corp., a major investor and key partner for OpenAI. According to a Bloomberg report, sources close to the matter indicate that Windsurf was hesitant to grant Microsoft access to its intellectual property. This condition became a sticking point that OpenAI was reportedly unable to resolve with Microsoft, whose existing agreement with OpenAI grants the software giant access to the AI startup's technology. This issue was reportedly one of several points of contention in ongoing discussions between Microsoft and OpenAI regarding OpenAI's restructuring into a commercial entity.

What is Windsurf into

Founded in 2021, Windsurf is a prominent player in the burgeoning field of AI-driven coding assistants. These systems are designed to automate and streamline coding tasks, including generating code from natural language prompts. The startup has successfully raised over $200 million in venture capital funding from investors like Greenoaks Capital Partners and AIX Ventures, according to PitchBook data.