This highlights the problem of not owning your own hardware and models.
It looks like they picked the right vertical but did not price properly and now it is hard to increase the pricing.
>>>>>>>>>>>>>>>>>
This video by Wall Street Millennial explores the economic crisis facing AI coding startups, specifically focusing on Cursor (Anysphere) and its struggle with high-usage "whales."
The Rise of Cursor- Rapid Growth: Cursor is an AI-native Integrated Development Environment (IDE) that reached $500 million in annual recurring revenue (ARR) in just two years—the fastest growth in startup history [ 04:05].
- The Product: Unlike standard chatbots where you copy-paste code, Cursor has direct access to a user's entire codebase, allowing it to refactor, debug, and update multiple files simultaneously [ 04:51].
- Valuation: As of late 2025, the company reached a valuation of $29 billion after multiple massive funding rounds [ 17:15].
The "Whale" Problem & Financial Losses- The Middleman Model: Cursor acts as a middleman, paying APIs (OpenAI, Anthropic, Google) to use their models while charging users a flat subscription fee [ 05:32].
- Unsustainable Costs: While most users cost less than their $20 subscription, "whales"—users running the AI constantly on massive codebases—can incur thousands of dollars in API costs per month [ 06:35].
- The Reasoning Factor: Newer "Frontier" models (like GPT-5) use "reasoning," which consumes exponentially more tokens. A single complex request can consume millions of tokens, equivalent to reading the entire Harry Potter series several times [ 14:44].
The Pricing Pivot- Consumption-Based Pricing: In June 2025, Cursor abandoned its unlimited $20/month plan for a usage-based model to stop the bleeding [ 13:47].
- Surprise Billing: This change led to "sticker shock," where a single request could cost a user over $10 without warning if the AI had to scan a large project [ 14:30].
- Competition: Cursor now competes directly with the model providers themselves (e.g., Anthropic's Claude Code, Google's Anti-gravity), who can offer more predictable subscription pricing because they own the underlying hardware and models [ 16:32].
Future OutlookDespite the pricing controversy, Cursor’s revenue doubled to $1 billion ARR by late 2025 [ 17:21]. However, the company continues to burn massive amounts of cash, suggesting that even with higher prices, the cost of AI inference remains a significant barrier to profitability [ 17:44].
AI Has A Whale Problem
Wall Street Millennial · 12K views
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