Cursor suddenly required users to upgrade to a $60/month plan, after previously announcing an unlimited plan for $20/month without prior notification to users.
Some users were charged unexpectedly high amounts (e.g., over $100), expecting unlimited requests.
The shift in pricing created confusion and frustration due to lack of clear communication about usage limits and billing details.
The speaker acknowledges a personal bias as an investor in Cursor but aims to provide a balanced view.
Previously, Cursor’s $20/month “Pro” plan offered 500 fast requests (using premium models) and unlimited slow requests or simpler model completions.
The new structure provides $20 credit for API usage per month instead of a set number of requests, along with unlimited access to certain “auto” modes.
Users now pay based on API token usage, where advanced models and features quickly increase cost.
Power users can now purchase an “Ultra” tier for $200/month, offering 20x more usage than Pro.
Existing users can opt to stay with the old 500-request-limit method.
AI service providers initially offered low-cost tiers as loss leaders, subsidized by venture capital, leading to customer expectations of cheap, unlimited usage.
As AI model costs rose and user demands grew (via new features and multi-step tasks), maintaining these subsidies became unsustainable.
Cursor and similar tools face higher per-message costs; previous $20/month tiers now often represent losses for heavy users.
The change to API-cost-reflective pricing is part of an industry-wide shift, moving away from dramatic subsidies as usage and costs increase.
Competitors like Anthropic and Google can afford to subsidize AI tool usage for users due to massive funding or internal resources, leading to temporarily generous offerings.
Smaller platforms like Cursor face higher model costs and less ability to subsidize, making sustainable pricing necessary.
The classic “free lunch” period (cheap AI use subsidized by big companies) is ending as loss leaders are phased out or moved to more expensive plans.
Examples from other industries (e.g., Amazon’s diapers.com price war, ride-sharing, food delivery) illustrate how big players push prices down to outcompete smaller firms and eventually raise prices.
The Impact on Power Users and Market Dynamics 42:04
Most Cursor users do not exceed their included $20/month credit, but power users (top 1%) dramatically exceed this, becoming disproportionate cost centers.
Power users often act as community advocates, bringing in more users; alienating them risks losing both their business and the wider community they influence.
Cursor’s changes may push die-hard users to competitors temporarily subsidizing heavy usage.
Platforms must balance serving high-usage advocates with maintaining overall financial viability.
The uncertainty about real costs and usage limits remains a significant pain point, especially for power users.
It's reasonable to view AI tools as providing more value than their subscription price, but users have valid concerns about lack of clarity and unexpected costs.
The best approach is clearer communication, improved transparency, and willingness to let the top 1% of users receive higher subsidies while not losing money overall.
The AI market is shifting: subsidies are winding down, prices are normalizing, and economically sustainable models are becoming the norm.
Cursor’s missteps provide lessons for both the company and the broader industry on how to manage pricing transitions and maintain user trust.
Ultimately, service providers must better explain and visualize costs, retain their advocate power users, and communicate changes transparently to navigate the evolving economics of AI tools.