Couldn’t it wind up being easy for Cursor and other variants of VS Code to be long run beneficial for VS Code itself? Seems like having a different third party team extending your stuff and testing it, could be hugely valuable, they take risks and move fast, the upstream project gradually learns from what works for the forks, people contribute various other new extensions.

In the age of LLMs, community is worth its weight in platinum, cutting off Cursor just incentivizes them to develop some new better thing with better technology (cough Zed, Ghostty) to compete with VS Code which won’t benefit Microsoft because it’ll be separate. What’s the use in not just open sourcing the C extension? With more people moving off C anyway, might as well get the free community contributions

MSFT want to build their own Cursor aka Copilot Agent.

They can build a better product with their resources effectively extinguishing Cursor, who will then need to find a way to differentiate.

If Cursor was smart, they would have decoupled from the beginning as they had first mover advantage. They will now have to adapt while fending off competition from MSFT and the other players.

MSFT meanwhile, have discovered that this market is too profitable to be left untouched. They have probably been building their agent for a while and have now decided to launch while simultaneously blocking direct competition. They already have an ecosystem with users who have switching inertia. It's a brilliant yet ruthless move.

Cursor is a small team, MS is a titanic enterprise. I highly doubt that Cursor could exceed MS when their entire product is built on VSCode in the first place and they can't even seem to describe their usage policies to their paying users.