Windsurf is in a scary spot

Plus: XChat launch; Unreal Engine's human upgrade

Author

Joey Padgett
June 05, 2025

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Hey people!

Welcome back to Forests Over Trees, your tech strategy newsletter. It’s time to zoom-out, connect dots, and (try to) predict the future.

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Windsurf is in a scary spot

Plus: XChat launch; Unreal Engine's human upgrade

⚡ Tech News Takes ⚡

  • What’s up: NotebookLM — Google’s AI tool that summarizes material from documents, slides, and YouTube — now supports public sharing via link. Viewers can’t edit the notebook but can interact with AI-generated content like audio overviews, briefings, and FAQs. Google also recently launched a mobile version of the app and allows private sharing with editing access via email.

  • So what: This is the start of a new trend with AI tools — bringing collaboration and sharing features to the forefront. For the incumbent tech companies like Google and Microsoft, this is good news! They already have decades of experience being the productivity/collaboration suite of choice for companies.

  • What’s up: Windsurf lost first-party access to Anthropic’s older Claude 3.7 and 3.5 Sonnet models, and was entirely cut out of the new Claude 4 launch. Windsurf’s customers now have to use a cumbersome workaround for Claude access, and some are simply switching to competitors like Cursor and GitHub Copilot for full access. The decision came with just 5 days notice. Windsurf hit $100M ARR in April and is reportedly being acquired by OpenAI,

  • So what: Three takes here. First, what did Windsurf expect!? If they’re about to get bought by Anthropic’s competitor OpenAI, they shouldn’t be surprised to see knives coming out. Second, this story is another reminder about the power of suppliers (cough, Porter’s 5 Forces, covered in detail here!). Anthropic and the other model providers are suppliers to the AI startups, and Windsurf needs to have a diverse set of supplier relationships to avoid any one supplier getting too much power. Third, this is scary if you’re Windsurf. They haven’t yet finalized the OpenAI deal, and they’re already being targeted. They need to either get the deal done ASAP or publicly announce that it’s not happening.

  • What’s up: Elon Musk says XChat — X’s upgraded direct messaging platform — is rolling out to all users this week with encrypted messaging, vanishing texts, file sharing, and audio/video calls. It reportedly has “Bitcoin-style” encryption, which has sparked confusion, as Bitcoin uses cryptography, not encryption. The launch comes amid recent outages on X that have affected key features, including XChat itself.

  • So what: Regardless of the specifics of XChat’s approach to security (which I agree sounds more like marketing than security right now), the important point is this — Elon is out of politics and back to tech. His Neuralink (brain-computer interface startup) just raised $650M at a $9B valuation, xAI announced the Telegram partnership (which we covered here), and Tesla is starting its robotaxi service in Austin June 12.

  • What’s up: Epic Games upgraded its MetaHuman tools in Unreal Engine 5.6, enabling real-time facial animation from a single webcam feed. MetaHuman Animator can mimic expressions without motion capture suits and even generate animations from audio alone, adjusting for emotional tone. A new body system allows dynamic clothing fits and full customization.

  • So what: This is awesome. The Unreal Engine brings lifelike physics and graphics to games, and this MetaHuman update makes human characters more lifelike and easier to create. By continuing to take difficult, undifferentiated work off the plates of indie developers, Epic is letting them focus instead on telling great stories and crafting fun games. Gamers rejoice.

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🌲 F/T Shoutouts 🌲

  • Top Energy Producers — there’s been lots of talk recently about America’s energy production capabilities, and whether we have enough to fuel all the AI/data center growth. But also, look at that massive gap to China!

  • Wisdom from Shopify — great interview with CEO Tobi Lutke that I came across. Worth a watch if you’re a developer or PM in tech… he talks about the importance of building things, acquiring skills to build better, and having empathy for users.