The business of vibe coding
How do Cursor, Replit, Bolt, etc make money? And where are the safe bets?
In case you haven’t heard already, the latest fad in the devtools market is vibe coding – making software by letting AI write the code for you while your eyes gloss over. Cursor, which makes a VS code fork that lets you make AI-powered changes to your codebase, raised at $9.6B. Codeium (which makes Windsurf, another AI code editor) and Replit (web-based AI code and deployment platform) are raising at around $3B. Lovable, Bolt, V0, Devin, Github copilot, Augment and others are often in the fray as well.
So now the more conservative investors (hedge funds, PE, late-stage VC) are starting to pay attention to the market. I’ve been consulting to help some of them understand the space, and was surprised I couldn’t find much analysis online. So I decided to outline how I see the business models for vibe coding. (That’s assuming we have an economy left by the time of posting.)
How do I know this stuff, you may ask? I led product design at Replit for 3+ years, launching the very first AI features in 2021 all the way to the V1 of Replit Agent in 2024, which kicked off the current growth spurt.
Background — Devtools markets
If you’re unfamiliar with the devtools market, there are generally three stages in the software creation life cycle, each with their own tools and business models:
Development (writing the code)
Products: VSCode, JetBrains, Android Studio, XCode, Zed
Business Models:
Free (Most editors)
Seat-based (Some cloud-based or framework-specific editors charge for seats e.g. IntelliJ by JetBrains)
Repository/CI/CD (storing/versioning/testing/merging the code into the production codebase)
Hosting (hosting the application)
Products: GCP, AWS, Railway, Heroku, Vercel, Render, Cloudflare
Business model: Usually tier-based and/or usage-based, but basically you pay more for more compute/bandwidth.
Some things to note about the devtools market:
One: hosting is generally where the most revenue is, but is also the most commoditized (you’re basically just renting computer time in a server farm somewhere). AWS, GCP, Vercel, Railway, etc all compete on price, so they bundle services together so it’s harder/more expensive to switch.
Two: traditionally, serving the “hobbyist” market was traditionally a good marketing/acquisition tactic, but not a scalable business model. Heroku & DigitalOcean are both hosting services that originally appealed to indie devs and side projects, but eventually went upmarket (Heroku discontinued their free tier in 2022.) The reason is that hobbyist usage is usually low + spiky compared to scaled business usage and cheap/free tiers are targets of abuse (crypto mining, phishing, etc.)
Three: It that it isn’t common for one product/company to be vertically integrated across all three of those stages. Microsoft is arguably the most vertical: they own VScode/Visual Studio (development) + Github (CI/CD) + Azure (hosting). But even devs and companies who use one of those tools pick and choose the tooling they like or need for each stage individually. For example, a team might use a mix of editors for development, GitHub for collab/CI/CD, and deploy on Render + Cloudflare.
Four: Historically, it was hard to charge money for IDEs, especially on a recurring basis. There are great free options for most tooling. For hobbyists, usage is spiky (e.g. you might work on a side project or class for a couple months and then not need to use the IDE again for a while) so developers generally aren’t willing to spend recurring money on an IDE itself (the exception is when companies pay for very specific IDEs that everyone on the team uses.)
Now, how does this change in the advent of vibe coding?
There are two market changes: one for existing SWEs, and another for “consumer developers” — non-technical vibe coders who can make software for the first time with the help of these tools. The former is a change to the existing market, but the latter is an entirely new market for devtools.
Vibe Coding for existing SWEs: new development costs
For the existing SWE, the main value is in improving development speed. Engineers at a startup who switch from VSCode to Cursor or Windsurf or start using Copilot/Augment are doing so because it helps speed up their existing work. These products are mostly IDEs with AI features built on top. Users are generally doing the same work they’d be doing before, but faster.
This speed has a new cost — subscriptions (Cursor has a $20/mo pro plan and $40/mo business plan) or usage-based pricing. Businesses are willing to pay for these to get more productivity out of their engineers. The nice thing about selling to engineering teams is that they usually already have a budget for tooling.
One business problem for the Cursors of the world is developers want fixed-cost subscriptions, but they have variable-cost model inference. The more users trigger AI features, the more Cursor/etc pays for the inference. Cursor has even introduced limits to even their paid “pro” plan so they don’t go margin-negative.
Importantly, the Cursor/Windsurf/Augment/Copilot users are generally only changing a single part of the devtools lifecycle: the development stage. They’ll then push their code to the same repository they were using before, and deploy to the same hosting platforms.
The biggest risk to businesses like Cursor/Windsurf is that swapping IDEs and development tools is easy. This is partially why Cursor has been able to grow so fast — it’s easy to open an existing codebase in Cursor and try it out — but it also means that it’s equally easy to switch from Cursor to another newer, shinier tool if one comes along. (It’s always slightly more friction to get a business to switch tools than an indie, but it can happen faster than you’d expect — the digital design market switched from Sketch to Figma almost entirely in like 2 years.) For example, if the model that Devin is proposing (just assign tasks to a “virtual teammate” and review/merge their PRs) turns out to be easier than using a souped-up AI IDE like Cursor, I could see adoption there eating into Cursor’s userbase.
The second biggest risk is that Microsoft could change the VSCode license to prevent Cursor/Windsurf from forking it. Right now switching to either is easy because if you’re used to VSCode, those two are literally built from VSCode forks, so the UI, extensions, keyboard shortcuts, etc are all familiar. If they had to rebuild all the functionality VSCode is giving them for free, I’m skeptical Cursor or Windsurf would survive. And Microsoft is incentivized to do this — it would make their Github Copilot offerings more competitive.
Vibe Coding for “consumer developers”: sticky hosting
For someone who was not a developer, and is using vibe coding tools for the first time, the product + business model looks quite different.
For starters, they don’t have an existing codebase or tools. They might not even have a clear understanding of the software development lifecycle or vocabulary. These are people who would probably be using Squarespace/Zapier/Webflow or other similar tools before.
Second, they probably don’t have the technical knowledge to navigate the entire development lifecycle or migrate from one tool to another. Go look on r/replit or r/cursor and you can find tons of basic questions like “how do I deploy what I made” or “how do I revert to an older version”.
This means a few things things from a product perspective: One is that getting users from scratch to a working version of their idea quickly is the job of the “editor”, not being able to make PRs on existing codebases. An attribute of this kind of user is that their usage is also probably spiky, like hobbyist devs — they’re willing to try a bunch of tools once, but once they either fail or have a working version of what they’re building they might only need to use the “editor” on occasion.
A follow-on effect of this is that hosting is the more valuable business model than development for this type of user. It’s stickier. Once they have an application hosted, especially one with some technical complexity like a database or auth, migrating that app to a different hosting provider is unlikely, even if it would be pretty feasible for an SWE. This is why Replit’s paid deployments growing is a much more reliable business indicator than the number of people paying for the Replit Agent, for example — the editor is just the way you onboard non-technical users onto your hosting service.
This means that vibe coding platforms with ties to hosting platforms are the best positioned for stable growth for consumer developers. V0 is run by Vercel, for example, so things made with V0 can be seamlessly hosted on Vercel (which turns into ARR). Replit has partnerships on postgres DBs and hosting services, so users who make an app using the Agent then pay monthly to host it seamlessly.
I’m the most cautious about Lovable and Bolt’s business for this reason. They might be great AI creation experiences, but it’s unclear to me what their long-term business model is — Bolt was built by Stackblitz (who didn’t have a hosting product prior, at least) and it seems like Lovable is hosting the apps they showcase on a lovable.dev subdomain (e.g. remindr-monthly-magic.lovable.app.) I’m not sure if they’re just eating the hosting + bandwidth costs themselves while they find product-market fit, but their pricing pages don’t include info about hosting or bandwidth costs, only the “creation” costs. I would guess that at some point they either expand into the hosting business themselves or find a partner that can help them support a hosting offering — otherwise they’re at risk of only making money when someone first makes an app, which I’m not convinced is a reliable business over time, especially as hype dies down.
So if hosting is actually the important business to get new users onboarded onto, what are some potential challenges to the Replit, Lovable, Bolt contingent? The biggest threat imo would be if any of the existing cloud providers (AWS, Azure, GCP, etc) started wrapping their cloud & hosting services in a Replit-esque interface that allowed consumer devs to make services just as easily. They’d be able to do it at a lower margin than Replit because they don’t have to partner and take pennies off the top. They could also keep popular functionality first-party if they had their own consumer platform.
So, to summarize: if I was investing in one of these companies, these would be the important questions:
Is this for existing SWEs or non-technical users?
If for SWEs, what would prevent them from adopting a newer, shinier tool if it was available?
If VSCode changes its licensing terms, is this product doomed?
If not, is this just an AI creation tool, or is this feasibly a hosting business?
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