Why AI coding tools like Cursor and Replit are doomed - and what comes next

The newfangled programming tools don't have what it takes to go the distance. Here's why.
tiernan-ray
Written by Tiernan Ray, Senior Contributing Writer
Oct. 31, 2025 at 8:09 a.m. PT
table of contents

Can't compete with the AI giants
Observability is the next frontier
Code tools will adapt or die
code
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ZDNET's key takeaways

AI-based coding tools won't be able to compete with the LLM giants.
Observability is one possible way to differentiate the tools.
Some startups will get acquired, others will go out of business.
Silicon Valley has spent billions of dollars funding startups that use artificial intelligence to generate computer code automatically, such as Replit, Cursor, Harness, Windsurf, Augment Code, and All Hands AI.

Despite all that money, the startups may still end up going out of business or being acquired by much larger software companies. Cursor and the rest lack viable business plans to distinguish them from Anthropic, OpenAI, Google, Microsoft, and other foundation model providers, who control much of the underlying technology, according to a seasoned tech executive who's surveyed the field.

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"Code generation is so close to the foundation model. I just don't think you can add enough value above that over time to make a business," said Jeremy Burton, CEO of software startup Observe, Inc., in a chat he and I had recently via Zoom.

Burton has served in numerous enterprise tech capacities, including as a senior vice president of marketing at Oracle, president for enterprise security and data management at Symantec, CEO of startup Serena Software, and head of corporate development at Dell Technologies. He is currently the CEO of software maker Observe Inc., based in San Mateo, California, in Silicon Valley.

Can't compete with the AI giants

"I think, ultimately, over time, those foundation models become good enough [at coding]," said Burton. "The pure plays, they're left in a situation where they no longer have enough differentiation from the foundation models to create businesses."

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Cursor and the rest have been focused on building various kinds of cloud-based "integrated development environments," or, IDEs, a programming tool that lets programmers assemble lines of code, invoke programming libraries to add functions, and to test and debug the programs, and then put the final compiled program into production.

cursor-demo
The Cursor AI-driven integrated development environment (IDE)
Cursor Data Inc.
The tool makers or their parent companies have been flooded with venture capital funding because, as a survey by venture firm Menlo Ventures indicates, inside enterprises, product and engineering is the area that has been the second-largest user of AI to date behind IT operations.

A total of $3 billion has flowed into key startups Data Robot Inc., parent of Cursor's creators; Replit Inc.; Cognition AI Inc., the owner of Windsurf; Augment Computing Inc., the owner of Augment Code; and All Hands AI Inc., according to data compiled by FactSet Systems.

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Companies with related technology pertaining to app deployment, such as Harness Inc., have also received hundreds of millions of dollars.

And yet, the guts of how the programs function, the core task of code generation, relies on the foundation models invented by the giants.

"Most of those startups depend on Anthropic's model," Burton said. In Burton's view, Anthropic's Claude family of large language models is the best among the AI frontier model makers in solving the problem of automatic code generation. "Anthropic models are better than anyone at code generation."

As a result, "Code generation tools are going to struggle to keep ahead of Anthropic," he said.

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Anthropic has built its own IDE on top of Claude, called Claude Code. "Anthropic has got the foundation models. Claude Code is probably going to be good enough," said Burton.

Code generated in Claude Code, or in Microsoft's App Builder copilot, "is going to be done 'good enough' by the foundational model providers if all you need is an LLM [large language model], and access to a code repository (like GitHub)," said Burton.