Summary

OpenAI has missed out on a high-profile AI deal. Google is bringing on Windsurf CEO Varun Mohan and much of his research and development team after failed acquisition talks between OpenAI and the AI coding start-up.

Windsurf announced that former Head of Business Jeff Wang will serve as interim CEO, while Mohan and key team members move to Google Deepmind to work on so-called “agentic coding” projects.

According to The Information, Google is paying around $2.4 billion for the deal. The figure covers multi-year compensation for the incoming employees and a non-exclusive license to Windsurf’s intellectual property.

Windsurf will remain independent, with no change to its ownership. The company, previously known as Codeium, develops natural language-based AI tools for code generation and plans to ramp up its focus on the enterprise market.

A licensing play instead of a full buyout

Google’s move is part of a broader trend among tech giants, who are increasingly turning to licensing agreements and talent acquisitions rather than traditional takeovers. These kinds of talent-first deals are seen as a way to sidestep regulatory scrutiny that often comes with outright acquisitions. Major tech firms are now facing closer attention from antitrust authorities.

Last year, Google hired Character AI founders Noam Shazeer and Daniel De Freitas and paid $2.7 billion to the start-up as part of the deal. Microsoft took a similar approach, investing about $650 million to secure Deepmind co-founder Mustafa Suleyman as “CEO of AI” via Inflection.

Meta is also following this playbook, buying a 49% stake in Scale AI to bring on CEO Alexandr Wang and key staff. Meta has also recruited more than ten leading researchers from OpenAI recently.

Amazon has also joined the race for AI talent and technology. In summer 2024, Amazon acquired a non-exclusive license for Covariant’s robotics foundation models and hired roughly a quarter of Covariant’s workforce. The company also launched an “AGI Lab” in San Francisco, initially staffed by employees from Adept. Both transactions reportedly cost about $1 billion each.

OpenAI’s Windsurf bid reportedly blocked by Microsoft ties

OpenAI had been in talks for months to acquire Windsurf outright, reportedly offering around $3 billion in a bid to regain ground in the fast-growing market for AI-powered coding tools. Microsoft’s GitHub Copilot and Anthropic’s Claude Code are currently leading the space. The Windsurf deal would have been OpenAI’s largest to date.

According to The Information, the talks collapsed over concerns about OpenAI’s existing agreement with Microsoft. That contract requires OpenAI to share its technology with Microsoft and gives the software giant exclusive rights to host OpenAI’s models on Azure until at least 2030. OpenAI was unable to secure an exception for Windsurf.

After details of the potential deal between OpenAI and Windsurf became public, Anthropic limited Windsurf’s access to its Claude models to prevent its technology from ending up with OpenAI. It’s unclear how the situation will change now that Google has brought in parts of the Windsurf team. Google is an investor in Anthropic, and while the two companies collaborate in some areas, they directly compete in the AI coding market.