The Deadweight Loss of Visual Studio Code

My kids think I’m weird because I hate free things. I am deeply suspicious of them.

• Free ice cream? Long line.
• Social media? If you’re not paying for the product, then you are the product.
• All-you-can-eat sushi? I can’t even.
• VS Code? — ???!!!???

But from a more serious economic theory perspective, if a dominant firm with diversified revenue streams and deep fiscal reserves offers a product at a price (free) that a competitor can’t match, it will create market distortions and economic deadweight loss (an economic term that represents the lost economic value that would otherwise benefit society in an efficient market).

As software engineers, we benefit from the competition from Codeium and Cursor. From both an innovation and pricing perspective, as consumers, we see the benefits of healthy competition. Every week, it seems they leapfrog one another.

I worry that we are losing innovation on the editor front, at a critical time for editors. In my opinion, the two leaders are JetBrains and Microsoft Visual Studio Code—both excellent products. I would argue (and certainly it is personal preference) that JetBrains is better (their indexing is amazing, refactoring ability, debugger is magic, and nothing comes close to Datagrip). One license for this is roughly $500-800/year/person for an organization.

Now imagine a CTO having a conversation with their CFO of a 100-engineer shop: “Hey, I want to get JetBrains for my org, it will cost $80k.” The CFO says, “Cool, but why not just get VS Code? It’s here, it’s good enough, and it’s free.” That is just a really hard conversation to have.

MSFT should start charging a fair price for its product. Doing so will fix three of the main issues of economic deadweight loss:

• Competitor elimination: how can smaller firms compete in the long term
• Long-term monopoly power: once competition goes away, MSFT can capture value in a distorted way
• And, innovation reduction: (This is the one that I am currently most interested in). I want to see the leapfrogging I see with Cursor and Windsurf

What do you think? Can anyone convince me that it’s fair for MSFT to offer VS Code for free?

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