Ford is poaching Apple again. Will Apple stop making cars?

With the advent of the era of software-defined cars, Ford is actively building more services to create personalized driving experiences for users by connecting hardware and software and bring new revenue streams.

While Ford generated $45 billion in revenue in the second quarter, the automaker expects its electric vehicle business to lose $4.5 billion in 2023. So Ford is looking to its software business to help close that gap.

Ford CEO Jim Farley aims to narrow the gap in auto revenue through boom and bust cycles by creating an ongoing revenue stream through software services.

"We're now in the hundreds of millions of dollars in revenue with very healthy margins," Farley said. "Based on growth, we expect our revenue to be 10x in the next few years."

To capitalize on this growth, Ford said on August 14 that it had hired Peter Stern, Apple’s former vice president of services, to lead a newly formed unit responsible for creating new products by integrating hardware, software and services. and promotes innovative user experiences and is committed to creating hands-free highway driving and safety systems.

"Vehicle software will be Ford's fastest-growing revenue segment," Farley said. "Sometimes, unlike our automotive business, software services contain huge profit margins."

No one is more suitable than Stern

Stern will report directly to Farley.

He is responsible for creating a world-class team and serves as president of the new Ford Integrated Services division. Stern will integrate hardware, software, subscriptions and services from Ford's other three divisions - Ford Blue (gas-burning vehicles), Ford Model e (electric vehicles) and Ford Pro (commercial vehicles), including the expansion of BlueCruise hands-free driving services scope. He will also lead Ford Next, Ford's global venture studio.

Stern served as Apple's vice president of services and has more than 6 years of working experience at Apple. Until January of this year, he was responsible for Apple TV+, iCloud, Apple News+, Apple Books, Apple Arcade, Apple One and Apple Fitness+, as well as MLS Season Pass. Stern also oversees marketing for all Apple services, including the App Store, Apple Card, Apple Pay, Apple Music, Apple Podcasts and Apple Maps. He also oversees Apple's advertising business. When Stern left, Apple had more than 1 billion subscribers.

Photo credit: Michael Short/Getty Images

Before joining Apple in 2016, Stern worked at Time Warner Cable (now Warner Bros. Discovery) as executive vice president and chief product, people and strategy officer, where he helped build the media giant's subscription base. He began his career at McKinsey & Company.

Stern joins the automotive industry as it transitions from gasoline engines to electric vehicles, and from human driving to autonomous driving. It just so happens that at this stage, Ford not only hopes to strengthen the production of hardware vehicles, but also takes precautions to try to provide powerful software services around these vehicles.

"The biggest change in our industry is the shift to digital products and physical services," Jim Farley, Ford CEO and president, said in a statement. "This is transformational because a cornerstone of our Ford+ program is through Great hardware and software create incredible user services and experiences. No one on the planet is better equipped to build this strategically important part of our business."

Stern will focus on "a user experience that feels like magic." "This service will generate high-margin incremental revenue," he said.

"I'm very confident in our ability to not only deliver great experiences in the future, but to build on the already pretty solid foundation that we're seeing today," Stern said. "From my perspective , all I feel is optimism.”

Farley has recruited a slew of executives from outside the auto industry to join the management team, many from the technology industry, to help implement the company's Ford+ restructuring plan.

Ford has been restructuring its business for several years under Farley's Ford+ plan. The plan focuses on improving operational efficiency while better positioning Ford for investments in electric vehicles, software and other emerging technologies.

Strikingly, in September 2021, Farley poached former Tesla and Apple executive Doug Field to lead Ford's technology efforts. Field was the de facto head of Apple's effort to build self-driving electric cars, known as Project Titan.

Stern said he and Field, who serves as chief advanced product development and technology officer, "will be working side by side" at Ford.

In May of this year, General Motors hired Mike Abbott, former vice president of engineering for Apple's cloud services division, to start a new software division.

Stable source of income

Monetizing emerging software products such as advanced driver assistance systems and other safety and convenience features is seen as a challenge for automakers as they try to add stable revenue through software subscriptions.

Car companies are increasingly turning to monthly or annual subscriptions for certain digital products, including semi-autonomous driving capabilities, as new revenue streams. Consumer advocates say the auto industry risks angering customers who previously only had to pay once for service, or not at all.

Farley stressed to the media during a conference call to introduce Stern, president of the newly formed Ford Integrated Services division, that Ford would not follow the lead of companies that charge users to activate steering wheel heating, heated seats or e-commerce features.

Farley and Stern firmly believe that users will accept new technologies and be willing to pay for them if they improve their lives. This confidence is met with growing frustration among users, who worry about the high cost of the vehicles, the additional costs of service and the complexity of using them.

Stern dismissed the idea that companies like Ford are “rigging off” customers by launching new subscription services. "Ford is not giving away customers," he said. "Our opportunity is to provide customers with continued significant value. If we do this well, customers will sign up, not only for individual optional services, but we will also create bundled services. Making it truly easy for users to get the most from their vehicles.”

"I firmly believe that when services bring value to users, it is appropriate for users to pay for those services," he added.

Ford Integrated Services will be responsible for further developing technologies such as Ford's BlueCruise hands-free Highway Driving Assist system, which currently sells for $2,100.

Ford plans to build more cars that are fully connected and can be updated over the air (OTA) like Tesla. Ford also said that starting this year, Google's Android will power the infotainment systems in millions of Ford vehicles.

Farley said in a call with reporters that Ford has more than 550,000 paid software and service users, of which Ford Professional Edition business users account for more than 80%. Services include vehicle management, telematics and electric vehicle charging solutions.