March 19, 2025

Is Cursor a good business?

Sam Lessin offered an interesting, skeptical take on Cursor and similar LLM wrappers on a podcast recently:

I like [Cursor]. I use it as a product. I don't see it as a good business.... The thing is, people are applying network thinking to what's fundamentally just a technology. There's no lock-in.... I think the whole point of AI is the switching costs for all this stuff goes to zero.

It's true that the switching cost of Cursor is close to zero. As an example, Claire Vo of LaunchDarkly switched from Cursor to Windsurf after a Cursor update caused issues with how code updates worked:

Even though Cursor may be the fastest startup to reach $100M in ARR, it does face some existential risks:

  • There are already several near-perfect substitutes for Cursor (Windsurf, Github Copilot). Users can easily switch, meaning Cursor's revenue retention is at risk. I would worry especially about Github's offering because its parent company Microsoft also controls VSCode, of which Cursor is a fork.
  • Because public LLMs are really the core drivers of Cursor's product value, the barrier to entry for new products is not high. Cursor might find itself in a red ocean competing with lots more code generation tools than today.
  • Cursor appeals to people who are already familiar with the integrated development environment (IDE) paradigm. But if text-to-product tools like Lovable and Bolt get good enough, people will ditch their IDEs along with Cursor.
  • General-purpose LLM products like ChatGPT and Claude are increasingly building out their own productivity tools and integrations with third-party ones, which could obviate the need for a separate LLM-powered code editor.

That said, I can see the following scenario play out:

  • Cursor continues to be the category leader in generative code editors, and it continues to spread through word of mouth among professional software engineers.
  • At $100M ARR with a price tag of $20/mo, it has about 400k paying customers. There are about 27M professional software engineers in the world (Wikipedia). If Cursor continues to spread quickly, it could hit $1B ARR with just ~15% market share among professional software engineers.
  • Moreover, Cursor's text-based product development could also attract growth from people who have not been professional software engineers, which is obviously a much larger market.

All told, that adds up to a huge amount of room for Cursor to run. With a brand that's essentially the ChatGPT for software engineering, I would bet Cursor continues to grow fast. The question is when it hits a wall – I don't think that'll happen for at least another couple years.