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Given all the geopolitical and economic upheavals so far seen in 2025, concerns about U.S. tech dominance, and fear of services from (non-European) IT providers being withdrawn as a result of government executive orders, the big question we keep hearing in Europe is “What is Plan B”?

I can answer that.

Firstly though, it should be noted that Europe’s interest in digital sovereignty has always been high. Now, as geopolitical tensions escalate and regulatory uncertainty deepens, many organisations on the continent see this as a strategic imperative.

But…

Geopolitical risk has typically been a low-ranking market driver for those seeking sovereign solutions in Europe. Sure, IDC’s 2025 Worldwide Digital Sovereignty Survey shows that this has climbed up the rankings, now attracting more than a quarter of responses compared to last year when it was slightly less and even coming bottom of the list of drivers as it has done so in the years prior to 2024.

What’s more revealing is that Europe now has a new top sovereign cloud market driver: protection against extra-territorial data requests.This reflects growing anxiety over foreign access to sensitive data and a clear signal that sovereignty is no longer just about compliance and control, but has a greater focus on autonomy.

The European provider’s response: “Plan B”

In what can be regarded as a largely unprecedented move, Europe’s service providers have reacted swiftly and have taken a proactive approach, joining forces to offer what they consider to be the “alternative” (and many also promote the idea of services, platforms and providers that can be labelled as “Made In Europe”).

Some examples here include EuroStack, which calls for a Europe-led digital supply chain spanning chips, cloud, AI and digital governance; virt8ra (pronounced virtoora), which is billed as Europe’s first sovereign edge cloud; and the EU-funded Sovereign European Cloud API (SECA) which is available to all European cloud providers for cloud infrastructure management.

These initiatives reflect a broader push to reclaim digital autonomy and reduce dependency on non-European tech giants.

The global cloud providers’ response: committed to Europe

The global cloud providers have not been standing still. And of course, none of them are about to walk away from their highly successful business operations in Europe.

In recent months, several big name providers, such as Google and Microsoft, have enhanced their sovereign offerings to emphasize how sovereignty and U.S. big tech can work provided the right controls and partnerships are in place.

And clearly, just as the global cloud providers are not planning to abandon Europe, Europe is not planning to abandon them.

For instance, despite all the media hype earlier this year around German authorities “ditching” Microsoft in favour of their own home-grown solutions (in June 2025, the German state of Schleswig-Holstein rolled out the OpenTalk videoconferencing solution, developed by Berlin-based Heinlein Support, across all state agencies), partnerships with U.S. providers continue to be announced.

These include the German Federal Office for Information Security’s (BSI) strategic cooperation agreement with AWS in the run-up to the launch of the AWS European Sovereign Cloud in Germany later this year.

Separately, the BSI has also teamed-up with Google Cloud to support the development and deployment of secure and sovereign cloud solutions for government agencies, including the German military that will use an air-gapped version of Google distributed cloud.

IDC’s response: Techxit? What techxit?

Despite their increased interest in sovereign solutions due to all the geopolitical turmoil, just 4% of European organisations say they plan to stop using cloud services and platforms from global public cloud vendors and only partner with local cloud providers.Thus, reports of ‘techxit’ – the prospect of U.S. providers being forced out of Europe for whatever reason – are greatly exaggerated.

Instead, the dominant strategy is staying “glocal”: combining global innovation with local control by using both global and local providers, and many organisations in Europe say they will continue to depend on global cloud vendors.

What’s more, the idea of a full-scale “techxit” remains impractical, given the deep integration of global technologies in European IT environments.

Of course, it would be naïve to think that buyer expectations have remained unchanged in 2025 – far from it.  The expanded interest in digital sovereignty in Europe is expected to account for a decrease in organisations using sovereign cloud from not only global providers but also their local counterparts, with managed providers seeing a slight increase. The changes here are not huge but significant enough for all providers to take not.

What all providers need to consider

To succeed in this evolving landscape, cloud providers must:

  • Offer verifiable protections against extra-territorial data access
  • Prioritize network sovereignty, including data in transit
  • Invest in AI governance and compliance-first infrastructure
  • Build regional partnerships to meet local expectations
  • Embrace open standards to support interoperability and avoid vendor lock-in

So what is “Plan B”?

IDC has long maintained that a trusted ecosystem of partners is needed for sovereignty to work at scale, and we believe this should include a combination of using global and local providers.

For the global cloud players that means looking for the right regional and in-country partners to help boost local credibility and to deliver local services, local expertise and leverage local knowledge.

For the local service providers, it means partnering with global players to help deliver innovation and scalability.

And then the global SaaS providers need to be able to work across both to develop and deliver customized offerings within sovereign frameworks.

Europe’s vision for digital sovereignty is not about isolation — it’s about balance. The goal is to level the playing field, reduce dependency, and ensure that the continent can compete globally while retaining control locally.

Ultimately it’s about the sovereign aspect of digital self-determination and survivability and self-sufficiency. The latest geopolitical uncertainties indicate a recalibration of Europe’s cloud market, not a rejection of global providers.

So what’s Plan B? Our advice to organisations in Europe seeking sovereign solutions is to stick to Plan A.

For more information and to see what Rahiel is covering, look here: Digital Sovereignty. 

Got a specific question? Drop it in here.

Rahiel Nasir - Research Director, European Cloud Practice, Lead Analyst, Digital Sovereignty - IDC

Analyst Profile
Rahiel Nasir is responsible for leading and contributing to IDC's European cloud and cloud data management research programs, as well as supporting associated consulting projects. In addition, he leads IDC's worldwide Digital Sovereignty research program. Nasir has been watching technology markets and writing about them throughout his professional life.

On the surface, AI seems woven into modern marketing. Pilot programs are evolving into real workflows. AI tools are being deployed for a variety of tasks. Teams are becoming more fluent in GenAI, automation, and orchestration.

But underneath it all, the foundation is often still rocky. Insufficient infrastructure, skill shortages, and a lack of clear governance reveal a distinct disconnect: many organizations are mistaking adoption for advancement, and it’s creating a false sense of AI maturity.

In fact, just over half of midmarket CMOs have implemented AI or GenAI into their marketing strategy, according to IDC’s 2025 Global Midmarket Tech CMO Priorities Survey. Yet only 26% are seeing improved efficiency, creativity, and effectiveness as a result.

This gap between confidence and capability defines what IDC calls the illusion of AI adoption.

At the same time, CMOs face mounting pressure to deliver more, faster. From bold innovation and customer acquisition to measurable ROI and alignment with enterprise tech infrastructure, today’s marketing leaders are navigating what IDC refers to as the Pressure Cascade: a compounding set of executive expectations with limited room for missteps.

This illusion of AI adoption is just one of four key disconnects reshaping marketing in 2025. And the first step to achieving true AI-driven growth is breaking through the illusion.

Download IDC’s Executive Insights Brief: The four disconnects shaping Marketing in 2025 and get three proven strategies to cut through the illusion of AI readiness and realign your AI ambitions with operational reality. Plus, uncover more insights into the AI challenges facing CMOs today.

The mirage of AI maturity

Momentum can create the illusion maturity. The presence of AI tools, active experimentation, and a handful of successful use cases can have organizations thinking they’ve successfully transformed into optimized, AI-infused operations.

But the reality is that most transformations are still in the early stages.

According to IDC’s MaturityScape: AI-Fueled Organization 1.0, a majority of midmarket businesses are undergoing an opportunistic pivot to AI while working to formalize strategy, establish oversight, and integrate practices across teams.

The problem isn’t that these companies are doing the wrong things. It’s that they’re doing the right things in isolation.

Experimentation remains siloed. Cross-functional learning is limited. AI efforts may be structured, but they’re not yet orchestrated or repeatable.

This pivot phase can generate positive signals such as early productivity gains, promising pilot outcomes, and internal excitement. But those signals can also be misleading. Without a strong foundation in place, organizations can’t move from experimentation to scale.

What emerges is a semblance of progress: a hodgepodge of capabilities that looks advanced but doesn’t have the basis to deliver long-term value.

Understanding where your organization stands on the AI maturity journey is a critical step toward ensuring your efforts in AI aren’t just active, they’re effective. And without that clarity, it’s easy to mistake movement for mastery.

The AI readiness gap: Perception vs. preparedness

While many marketing leaders are confident in their organization’s AI trajectory, IDC’s research reveals a different picture. On paper, AI adoption appears to be surging. However, operationally, most organizations are still grappling with fundamental gaps that limit impact and scalability.

For example, 37% of midmarket CMOs believe AI-enabled marketing technologies have potential to help their organizations over the next 12-18 months, according to the Midmarket survey. This includes incorporating tools and workflows to boost content creation and automate campaigns, critical elements of modern marketing success.

Still, only 31% of the same CMOs are prioritizing the modernization of their MarTech stacks. This is a crucial metric. Without updated systems and integrated data pipelines, even the most sophisticated AI tools remain disconnected from broader workflows, limiting their value.

What emerges is a widening gap between perception and preparedness.

Leaders may feel confident in their AI capabilities, but confidence alone doesn’t modernize platforms, upskill teams, or align cross-functional strategy. Without a clear-eyed look at operational readiness, organizations risk mistaking AI activity for AI advantage. And in doing so, they leave substantial business value untapped.

The blind spots hiding true transformation

The illusion of AI readiness isn’t just about overconfidence: It’s about overlooked fundamentals. Lurking beneath the surface of many marketing organizations are three persistent blind spots that impede progress, even as AI use proliferates.

  1. Unsustainable infrastructure: Legacy systems and siloed data remain some of the biggest barriers to AI effectiveness, yet few CMOs report modernizing their tech as a top priority. Too often, marketers layer new AI solutions onto outdated architectures, expecting transformation from tools that lack full integration with customer and operational data.
  2. Untapped talent: AI adoption isn’t just a technology challenge. It’s a people challenge. Marketing teams need fluency in how AI works, where it adds value, and how to measure and report ROI. Still, many teams lack the training or hiring support to confidently engage with AI tools. The result is inconsistent usage, limited experimentation, and stalled progress.
  3. Undefined governance: Perhaps the most insidious blind spot is the absence of a centralized AI strategy. In many organizations, no single leader owns AI enablement. Without clear accountability and guidance, AI initiatives tend to remain ad hoc, driven by interest or urgency rather than overarching business priorities. This leads to duplication, wasted investment, and difficulty measuring success.

Together, these blind spots don’t just delay AI maturity, they hide its true nature. Organizations may appear active in their use of AI, but without addressing these core areas, their progress remains tenuous at best. The longer these issues go unaddressed, the harder it becomes to scale success, drive innovation, or justify further investment.

Now is the time to break the illusion of AI adoption

AI is no longer optional. It’s a modern-day must. Customers anticipate personalization in real time. Executives expect measurable ROI and aggressive acquisition strategies. And the organizations that have made meaningful investments into foundational AI readiness are beginning to pull ahead.

For CMOs still operating under the illusion of AI capability, it’s time to wipe the fog from the mirror. The gap between perception and reality isn’t just a strategic misalignment – it’s a missed opportunity to gain a competitive advantage.

Without a concentrated effort to strengthen technological infrastructure, elevate team capabilities, and establish clear ownership, AI initiatives risk becoming isolated experiments rather than engines for long-term growth.

Forty-two percent of organizations plan to increase their IT spending in 2025 to support greater AI use, found IDC’s Future Enterprise Resiliency and Spending Survey Wave 11. But that investment won’t pay off without alignment across strategy, systems, and people. The marketing leaders who take ownership of that alignment now will be best positioned to turn AI ambition into operational impact.

The illusion of AI adoption won’t be broken with more tools or individual use cases. It requires a shift in mindset: from confidence to clarity, from activity to orchestration, and from experimentation to strategic enablement.

To go deeper on how to turn illusion into reality – and ensure your AI strategy delivers real results.

Customer relationships shift across moments, usage, roles, and goals, often in ways that challenge traditional thinking. It’s no longer sufficient for brands to predict what someone might do next. Instead, they must also understand why customers behave as they do and act while the engagement window remains open.

Today’s customer dynamics demand systems that can read intent and purpose in real-time, explain decision logic transparently, and trigger contextually appropriate responses. This requires predictive AI models augmented with generative AI capabilities and AI agents designed to analyze patterns, operationalize insights, make decisions, execute interventions, and learn from outcomes continuously.

Brands need to understand that customer intent or behavior shifts do not wait until the next daily or weekly campaign planning and execution cycles. They need to synthesize intent signals, build accurate AI models and put them to work before they become irrelevant.

Data foundation reality check

Organizations rushing to augment their predictive AI systems with generative AI and AI agents often discover that their data architecture cannot support the complexities required to transform raw data and context into AI-ready inputs. This is not a minor issue.

According to Future Enterprise Resiliency Survey, Wave 1, Feb. 2025, 38% of the respondents identified data management as one of their top priorities for AI strategy in 2025.

The challenge isn’t just traditional data quality – it’s creating a unified data environment where structured customer transactions, unstructured behavioral signals, social interactions, and external market indicators can be processed collectively. When data sources remain siloed or poorly integrated, AI agents make decisions based on incomplete context, generative AI produces responses that ignore critical customer history, and predictive models optimize for patterns that no longer reflect current customer reality.

Industry-specific requirements

Organizations often overlook customer data characteristics and AI model needs by industry, even within context of marketing and CX use cases. In travel and hospitality, the emphasis might be on seasonal demand patterns, loyalty program activity, and booking lead times, whereas in fashion retail, it could center on style preferences, return behavior, and fast-moving trend adoption. These variations shape not just the data collected, but also how it’s processed, modeled, and translated into timely marketing actions.

Best-fit customer analytics applications embed industry-specific frameworks, data models, and campaign templates. Prebuilt workflows and segmentation logic grounded in industry IP reduce customization effort, accelerate time-to-value, and ensure that marketing teams can act on insights in ways that resonate with their customers’ actual behaviors.

The autonomous future

The promise of autonomous customer analytics lies in its ability to analyze vast streams of customer data, make decisions and take actions at scale, and learn from the results to improve future performance. When built on a solid foundation, these systems don’t just respond to customer behavior, they adapt continuously, refining rules, models, and strategies based on what works and what doesn’t.

Achieving this requires more than deploying an advanced AI model. It requires continuous learning architecture that captures outcomes, detects drift in data, model, or customer patterns, and adjusts actions accordingly. Without these capabilities in place, moving too quickly to autonomous AI decision-making can be risky. Weak data quality, insufficient governance, and lack of monitoring can allow small errors to accumulate rapidly, resulting in inconsistent actions.

Value measurement systems

Organizations struggle to measure the ROI of traditional predictive AI. Even in batch-driven models, linking predictions to business impact can be challenging with unclear baselines and inconsistent attribution. If it’s difficult to quantify the value of a churn prediction or a propensity score today, the challenge grows when moving to generative AI and AI agents.

In fact, according to Future Enterprise Resiliency Survey, Wave 1, Feb. 2025, 34% of the respondents mentioned that demonstrable ROI is key consideration when they are evaluating agentic AI solution for marketing and sales.

Successful organizations will be those that build value measurement into their customer analytics applications. This means not only track the business impact from predictive AI use case but also show the direct link between model outputs, actions taken, and outcomes achieved. By establishing this closed loop, organizations lay the groundwork for measuring GenAI and AI agent performance, where the same approach must scale and provide continuous feedback for improvements.

Practical readiness

Successful customer analytics transformation requires organizations to start with a fundamentally different question: not “what insights can we generate?” but “what customer behaviors can we influence, and what organizational capabilities do we need to influence them effectively?”

Selecting the right use case (e.g., customer segmentation, propensity, personalization, journeys, digital experience, next best recommendations, etc.), strengthening the data foundation, pairing predictive AI with generative AI, piloting a bounded AI agent, governance, and establishing AI operationalization framework is critical to deliver consistent, measurable improvements in customer engagement and outcomes.

IDC MarketScape Customer Analytics Applications

To bring clarity to this rapidly evolving market and for buyers, IDC has released 2025 MarketScape report for Customer Analytics Application that help you understand and evaluate how these vendors stack up against capabilities and strategy criteria.

Clients can access the report here: IDC MarketScape: Worldwide Customer Analytics Applications 2025 Vendor Assessment

To learn more about our research findings, CDP vendors, and IDC’s marketing and CX technology best practices, feel free to schedule an inquiry or briefing request. Please reach out directly (Tapan.Patel@IDC.com) or fill out a briefing request form.

Connect with an IDC expert

Tapan Patel - Research Director for Customer Data Platform (CDP) - IDC

Analyst Profile
Tapan Patel is Research Director for Customer Data Platform (CDP), Intelligence and Analytics software market segments and a member of the Customer Experience (CX) Research team at IDC. Tapan’s core research coverage includes market trends, end-user requirements, use cases, market sizing, and business models for these critical segments. He is lead analyst for the CDP market, used by brands to improve customer insights and journeys across all touchpoints. His other research coverage areas include customer and product analytics and AI applications used by marketing, service, sales, contact center, and other enterprise teams to improve CX in B2C, B2B, and DTC engagements.

The role of the Chief Marketing Officer (CMO) is evolving rapidly, driven largely by the transformative power of artificial intelligence (AI). As technology reshapes marketing operations and customer engagement strategies, CMOs are being called upon to redefine their approach and step into new strategic roles.

The New Accountability of CMOs

Today, CMOs find themselves with expanded responsibilities beyond traditional marketing. IDC’s recent webinar, “AI, Strategy and the new CMO Mandate,” Laurie Buczek and MaryAnn Holder-Browne highlighted that an astonishing 81% of marketing leaders are now directly accountable for the digital customer experience, with 84% facing increased accountability for corporate communications. This places CMOs at the forefront of shaping organizational perception and customer relationships, using data-driven insights and AI-driven technologies.

Leading the Charge in AI Governance

AI’s rapid integration into business operations necessitates careful oversight and strategic governance. CMOs are uniquely positioned to lead this charge due to their deep understanding of customer data and interactions. This governance role ensures that AI adoption not only drives efficiency and innovation but also maintains digital trust and compliance.

Integrating Sales as a Strategic Marketing Channel

The integration of sales and marketing functions represents a critical evolution in the role of today’s CMO. As highlighted in a recent discussion, there’s a clear shift towards viewing sales not as a standalone department, but as a strategic channel integrated within the customer’s journey. CMOs, transitioning into roles akin to Chief Commercial Officers, are now tasked with orchestrating unified, seamless customer experiences. This blending of marketing strategy and sales execution is advantageous, and it’s increasingly essential for driving deeper customer engagement and sustained business growth.

Driving Growth Through Cross-Functional Integration

The distinction between sales and marketing is diminishing, with CMOs increasingly assuming responsibility for seamless customer journeys. This shift is transforming the CMO’s role into that of a Chief Commercial Officer, blending sales tactics and marketing strategies to foster cohesive customer experiences and drive measurable business growth.

Practical Strategies for CMOs in the AI Era

Given these new expectations, how can CMOs strategically navigate the AI landscape?

  1. Customer Acquisition and Experience: Prioritize AI tools that deliver personalized customer experiences and streamline acquisition processes, ensuring alignment with the company’s growth goals.
  2. Tech Stack Modernization: Lead strategic partnerships with IT departments to modernize the technology stack, focusing on tools that integrate AI capabilities effectively.
  3. Cross-Functional Integration: Foster collaboration across marketing, sales, and data teams to build a unified approach, driving consistency in customer messaging and experience.

Want more CMO-focused resources to help you capitalize on the AI technology shift? Visit our resource page to help you recalibrate your GTM strategy.

CMOs in the Age of AI: Adapting to New Mandates

The mandate for CMOs has evolved. As AI reshapes industries, marketing leaders who adapt quickly and strategically will position their organizations to excel in customer engagement, operational efficiency, and market leadership. The future of marketing leadership belongs to those who can effectively navigate this new landscape, leveraging AI to create authentic and impactful customer experiences.

Watch the full webinar replay to learn more about how marketing leadership is reshaping in response to technological advances and customer expectations.

Ryan Smith - Content Marketing Director - IDC

Ryan Smith is the Director of Content Marketing at IDC, where he leads brand-level content and social media strategy, aligning research insights with compelling storytelling to engage technology decision-makers. With a background in both IT and marketing, Ryan brings a unique blend of technical understanding and creative strategy to his work. He’s also a seasoned storyteller, speaker, and podcast host who believes the right message, told the right way, can drive both trust and transformation.

The smartphone industry finds itself at a crossroads, grappling with market maturity and the challenges of sustaining growth. Once a hotbed of rapid innovation, the sector now faces stagnation as global giants dominate the vendor space, governments adopt protectionist policies, and profitability dwindles. Channels, too, are struggling with reduced incentives, leaving them less motivated to push new devices.

In this environment, the search for breakthrough technology has become more urgent than ever. Vendors are desperate for an innovation that can reignite consumer interest and drive large-scale replacements of increasingly durable smartphones. The stakes are high: without a compelling reason for consumers to upgrade, the industry risks losing momentum entirely.

The quest for the “next big thing” has led to bold bets on technologies like 5G, foldable displays, and AI integration. Yet, each of these innovations has faced its own set of hurdles, from high costs and limited use cases to consumer skepticism and slow adoption rates. The industry’s challenge is clear—find a game-changing technology that not only captures the imagination of consumers but also delivers tangible value. The question remains: which innovation will rise to the occasion?

5G Transition: Why It Fell Short of Expectations

The transition to 5G was heralded as a transformative leap for the smartphone industry, yet its impact on sales and consumer behavior has been underwhelming. Several factors contributed to this shortfall, revealing critical gaps in execution and market readiness.

  • Consumer Awareness and Use Case Gaps: For the average consumer, 4G already meets most connectivity needs, from social media browsing to video streaming. The incremental speed improvements offered by 5G failed to resonate as a compelling reason to upgrade. Moreover, the lack of well-defined use cases—beyond faster downloads—left consumers questioning the necessity of 5G-enabled devices. Compelling use cases never hit the mass market fast enough—“stream a video a bit faster” failed to sell phones.
  • Operator Investment and Commercialization Challenges: Telecom operators faced significant hurdles in rolling out and commercializing 5G networks. Many were still grappling with the financial burden of 4G investments, which had not fully delivered expected returns. The economic downturn and market maturity further strained their ability to invest in 5G infrastructure. As a result, network availability remained fragmented, delaying the further commercialization of 5G packages and limiting consumer adoption.
  • Limited Product Differentiation: Unlike the leap from 2G to 3G/4G, which introduced smartphones as a new product category, the shift from 4G to 5G did not redefine the device experience. Vendors struggled to position 5G as a must-have feature, as the technology did not fundamentally alter how consumers interact with their phones.
  • External Disruption: The global COVID-19 pandemic and accompanying economic volatility slowed the pace of 5G adoption. Consumers prioritized essential spending, while vendors and operators faced logistical and financial challenges in scaling 5G deployments.
  1. In summary, the 5G transition fell short due to fragmented operator investments, limited consumer awareness, and a lack of compelling use cases. While the technology holds promise, its immediate impact on smartphone innovation remains muted.

5G is a foundational capability that will matter for years, but as a buying trigger it became a point of parity. It is table stakes rather than a reason to replace a still‑reliable phone.

Foldables: Dazzling Displays, Constrained Adoption

Foldable displays were heralded as the next frontier in smartphone innovation, promising larger screens in compact forms. Over the past decade, displays grew until ~6.5–7 inches became the sweet spot.

Foldables promised the next leap: tablet‑like canvas in a pocketable device. Market leaders like Samsung and Huawei have pushed the boundaries with devices like the Galaxy Fold series and Mate XT, while others, such as Lenovo and TCL, have showcased futuristic concepts like rollable and bendable displays. Despite these advancements, foldables have struggled to gain widespread adoption and remain a premium niche for several reasons:

  • Price Ceilings: Foldable smartphones remain firmly in the premium segment, with an average price of $1,188 in 2025, nearly three times the cost of non-foldable devices. This pricing barrier limits accessibility and slows penetration, especially when Apple dominates the high-end market with a 74.2% share in the ultra-premium segment. In the $1000+ band, Apple dominates mindshare and market share; premium buyers often stay with the iPhone even over novel Android form factors.
  • Durability Perception: Durability concerns also weigh heavily on consumer sentiment. Early foldable models were criticized for their thickness, weight, and fragility, leading many to view the technology as experimental. While these issues have improved, skepticism persists, with many consumers waiting for the technology to mature further.
  • Practicality Trade-offs: Early‑gen thickness and weight—plus crease visibility—reduced pocket comfort and everyday appeal.
  • Perception challenge: Despite their innovative form factor, they have yet to deliver compelling use cases that justify their high price tags. For most users, the benefits of a larger screen do not outweigh the costs and uncertainties.

Even with meaningful engineering progress and real benefits for reading, multitasking, and content creation, foldables account for a small fraction of shipments. As of 2025, foldables account for just 1.6% of global smartphone shipments, a figure projected to rise only marginally to 2.0% by 2029. While the technology holds promise, its slow adoption underscores the challenges of balancing innovation with consumer needs and market realities. They inspire excitement but not yet mass‑market renewal.

AI Integration: The Emerging Game-Changer for Smartphones

The smartphone industry is witnessing a paradigm shift with the integration of AI, positioning chipsets as the cornerstone of innovation. With large models moving from cloud‑only to hybrid and on‑device execution, chip capability—especially NPUs delivering tens of TOPS—has become a differentiator consumers can feel: faster photo/video edits, instant transcription and translation, enhanced voice assistants, and privacy‑first features that work offline. Unlike foldable displays, which primarily target premium users, AI-powered smartphones promise to revolutionize the entire ecosystem—albeit with hurdles to overcome.

Chipset Capabilities: The Foundation of AI Smartphones

AI integration in smartphones hinges on advanced chipsets equipped with neural processing units (NPUs) capable of handling Generative AI models. Devices like the iPhone 16 Pro (Apple A18 Pro) and Galaxy S25 Ultra (Snapdragon 8 Gen 4) showcase the cutting-edge capabilities of these processors.

Flagship SoCs leading the charge today include, but are not limited to:

  • Apple A18 Pro – iPhone 16 Pro and 16 Pro Max
  • Qualcomm Snapdragon 8 Gen 4 – Samsung Galaxy s25 series, Xiaomi 15/15 Ultra
  • MediaTek Dimensity 9400 – Vivo X200 , Oppo Find X8
  • Samsung Exynos 2500 – Galaxy Z Flip 7
  • Google Tensor G5 – Pixel 10 series
  • Huawei Kirin 9020 – Pura 80 series

However, these chipsets are currently exclusive to premium models, limiting accessibility for the broader consumer base. This exclusivity creates a bottleneck for mass adoption, as the high cost of AI-ready devices keeps them out of reach for most users.

What’s Holding AI Back (For Now)

  • Premium Segment Focus: The initial rollout of AI smartphones in the premium segment is both a strategic advantage and a challenge. While it allows vendors to showcase the technology’s potential, it alienates the majority of consumers who are satisfied with their current devices. Without compelling use cases that resonate with everyday needs, the urgency to upgrade remains low. This dynamic mirrors the struggles faced by foldable displays, where high pricing and niche appeal slowed adoption.
  • Consumer Confusion: One of the most significant barriers to AI smartphone adoption is consumer (and even frontline sales staff) confusion. Many users struggle to understand what AI integration truly means—Is it just ChatGPT? Does it require subscriptions? How does it enhance daily tasks? This lack of clarity extends to vendors, who are still refining their messaging and use-case demonstrations. Until the industry can demystify AI and articulate its tangible benefits, widespread adoption will remain elusive.

Despite these hurdles, AI checks more boxes than foldables as a mass catalyst: it improves daily tasks, scales through software updates, and benefits from ecosystem flywheels across Android and iOS. As models get more efficient and mid‑range silicon catches up, AI features will trickle down and create new reasons to upgrade.

On the vendor side, vendors are shifting launch narratives from spec sheets to demonstrations of real‑world AI tasks: face‑aware retouching that respects skin tone, background clean‑up with content‑aware fill, audio cleanup during calls, meeting‑notes with speaker attribution, and semantic search across photos and files.

In summary, despite the challenges, AI holds unparalleled promise to reshape the smartphone landscape. With devices already boasting laptop-level processing power, the groundwork for AI-driven innovation is solid. As vendors shift their focus from technical specifications to real-world applications, and as software solutions extend AI capabilities to mid-range devices, the network effect will drive adoption. AI is not just a feature—it’s a transformative force that could redefine the smartphone industry in the years to come.

Chipsets vs. Displays: Why Silicon Likely Wins

Four dynamics tilt the scales toward chipsets and AI over display form factors:

  • Ubiquity of Benefit: AI touches photos, messages, calls, search, and work—not just screen real estate. That breadth matters.
  • Faster Iteration: Software features improve monthly; displays advance on annual hardware cycles.
  • Privacy and Latency: On‑device AI minimizes round‑trip to cloud and keeps sensitive content local.
  • Developer Leverage: common AI runtimes and SDKs let apps target large installed bases quickly, magnifying the impact of each chipset generation.

None of this diminishes the importance of display innovation—better outdoor visibility, PWM‑free dimming, efficient LTPO, and tougher glass all raise baseline quality. But if the goal is to unlock a broader replacement cycle, silicon‑enabled experiences are more likely to convert fence‑sitters than a novel hinge.

What This Means for OEMs, Carriers, and Channels

  • Lead with outcomes, not acronyms: demo a 30‑second AI workflow that saves a customer time or embarrassment; resist dense spec dumps.
  • Target mid‑range bridge SKUs: prioritize NPUs and memory configs that enable smaller on‑device models for key features (photo clean‑up, summarization).
  • Upskill sales teams: provide scripts and store demos to cut through AI jargon and show value quickly.
  • Respect repairability and longevity: AI features should run well for multiple OS cycles; communicate this to reduce upgrade anxiety.

Lessons Learned

  • Innovation must map to daily friction. If a feature doesn’t make photos, calls, or messaging better, it won’t move units.
  • Affordability gates adoption. The winner will be the first credible mid‑range AI experience, not the flashiest flagship demo.
  • Hardware–software co‑design beats specs‑for‑specs. NPUs, RAM, storage bandwidth, and model optimization have to be planned together.
  • Clarity creates confidence. Simple explanations (and in‑store demos) beat buzzwords for mainstream buyers.
  • Ecosystems compound advantage. Platform‑level AI frameworks and app integrations will outlast one‑off hardware tricks.
Learn more

Ramazan Yavuz - Director, Data & Analytics - IDC

Analyst Profile
Based in Istanbul, Dr. Yavuz focuses on the mobile device industry, including market sizing, forecasting, go-to-market studies, and technology trends. His responsibilities include engaging with OEMs, supply chains, distributors, and the financial industry to discuss markets and forward-looking analysis. Prior to joining IDC, Dr. Yavuz gained extensive experience in international marketing and sales through his work as a division manager for local and international firms in the Middle East, Africa, and Europe. Dr. Yavuz holds a Ph.D. in marketing from Bogazici University in Istanbul. His research focuses on artificial intelligence and customer experience and engagement. He regularly publishes in international journals and speaks at conferences.

The deadline for the transposition of the EU’s second Network and Information Systems Security directive (NIS 2) came and went in October 2024 with only a handful of member states having completed the task. As it became clear that this was not just a minor case of not submitting the paperwork on time, the European Commission (EC) swung into action, initiating infringement proceedings against 23 member states in November 2024, with those countries given until January 2025 to provide updates on their progress or demonstrate that they had achieved compliance. Only Belgium, Croatia, Italy, and Lithuania escaped the wrath of the Commission.

Changes

Through the first half of 2025 the picture gradually changed, although decisive numbers depend on the interpretation of what it means to be compliant. In May 2025, 19 member states were on the receiving end of another ultimatum from the EC. However, by July 2025, the list of countries that had enacted laws on the implementation of NIS 2 had swelled to 14 states, with Cyprus, Denmark, Finland, Greece, Hungary, Latvia, Malta, Romania, Slovakia, and Slovenia joining the first four countries noted above. Denmark, Finland, Hungary, Latvia, and Slovenia were the countries with the dubious honour of having transposed the directive but still making the EC’s naughty list. The nuance is that countries not only have to transpose the law, they also have to provide full notification of all applicable legislation to the Commission.

Note that EC saber-rattling is not confined to NIS 2: the Commission provides a monthly list of its infringement decisions and recent iterations have included calls around energy legislation, emissions trading, corporate sustainability reporting, and more.

It’s also worth looking at why some of the non-compliant states have not made the required progress. In several cases, the countries in question have gone through changes in government, often multiple times. In Portugal, the government has toppled three times in three years, most recently in March 2025. Germany’s elections in February 2025 meant that all pending legislation either had to be reintroduced or was put on hold. The collapse of the Dutch government at the beginning of June 2025 further set back a process that was already behind schedule.

Legislative processes are complex and any disruption can lead to delays both initially and then further down their carefully calibrated calendars.

Under pressure

What does this mean for all the organizations covered – or likely to be covered – by the Directive? How should a company with operations in 10 EU member states, for example, build its compliance strategy and roadmap if 5 of those member states have transposed the Directive and 5 have not? The legislation is already extensive and complex enough without such additional uncertainty layered on top.

Uncertainty impacts organizational planning. According to IDC’s 2025 EMEA Security Technologies and Strategies Survey, almost two-thirds of organizations covered directly by the legislation had not yet started compliance work, as of spring 2025. Allocation of dedicated funding is difficult under these circumstances, with 82% of organizations saying they had not seen any change in their security budget to address NIS 2 requirements. That does not mean no funding is available – but when the directive comes into force in their relevant markets, it may require reallocation of existing funds from other initiatives.

Of course, there are measures that can be taken that do not require technology investments, with 19% of organizations saying they have updated their security policies and processes in relation to NIS 2 requirements. Still, that is less than 1 in 5.

Up the hill backwards

Delays in transposition of the legislation may lead some organizations to consider that time is on their side and there is little need to press ahead with preparations for compliance. Until a European law has come into force, there is no legal basis to enforce compliance. Nevertheless, there are legal principles that caution against taking this approach.

The so-called doctrine of effectiveness principle created by the European Court of Justice in relation to EU laws puts obligations on EU member states to act in certain circumstances. It may seem like there is little incentive to pursue such cases but bear in mind that NIS 2 aims to build cyber resilience in critical and important entities, in the face of ever-increasing cyberattacks. So, when a major cyber incident disrupts operational capability in a critical vertical, after the initial impact has been contained and services restored, investigations and audits will follow. In that situation, there is no guarantee that the principle of effectiveness will not be invoked, if it is deemed that an in-scope organization failed to take appropriate measures to manage the risk.

Most member states have set up registration mechanisms through which in-scope organizations have to provide certain information such as designated personnel, contact details, IP ranges, and more. The designated authorities in each member state are required to compile those lists of critical and important entities and share the number of entities, along with the sector and subsector breakdown, with the EC and the NIS 2 Cooperation Group. These coordinated actions serve a broader function of enabling the EU’s supranational cybersecurity operational bodies to track and address major incidents that may transcend national borders and lead to impacts spreading across sectors and countries. Consequently, even in member states that have not completed transposition it is crucial that in-scope entities fulfill the registration requirements for their organization.

The area of incident response also bears scrutiny. Article 23 of the NIS 2 directive details incident reporting obligations, which include an initial alert that must be made within 24 hours of becoming aware of the incident, full notification within 72 hours, and a final, detailed report within one month. Even before full transposition, member states themselves are required to run Computer Security Incident Response Teams (CSIRTs) that are obliged to support in-scope entities in case of an incident. Subject to the findings of those cases, compliance demands could be applied retroactively or specific requirements imposed with compressed deadlines to address key issues.

It’s no game

Despite delays in transposing the legislation, the NIS 2 directive is moving inexorably towards being enforced across the EU and even beyond, when we take into account international companies with operations in EU member states or companies that are suppliers to in-scope organizations. According to IDC’s survey, 41.1% of organizations said that despite not being in-scope for NIS 2, they are still facing compliance requests from some of their partners that are covered by the directive. Individual countries continue to make progress: in Finland the legislation came into force on April 8th 2025; in Slovenia on 19th June; and in Denmark and Estonia on July 1st. Cyber incidents and the risk of extended legal actions make a very strong case for all in-scope entities to prioritize achieving NIS 2 compliance. And even if the auditors aren’t watching you – maybe the cybercriminals are.

To learn more about how European organizations are preparing for NIS 2 compliance, visit IDC’s European Security Technologies and Strategies page. If you have a specific query about NIS 2, drop it in this form.

Mark will be speaking at IDC’s CISO Xchange, which takes place 9-11 November in Marbella, Spain.

Mark Child - Associate Research Director, European Security - IDC

Analyst Profile
Associate Research Director Mark Child of IDC’s European Security Group leads the group's Endpoint Security and Identity & Digital Trust (IDT) research for both Western Europe and Central & Eastern Europe. He monitors developments in security technologies and strategies as organizations address the challenges of evolving business models, IT infrastructure, and cyberthreats. Mark's coverage includes in-depth security market studies, end-user research, white papers, and custom consulting.

Discover strategies to quantify ROI, build buyer confidence, and drive growth in a competitive tech market.

In today’s technology landscape, having an innovative product is just the starting point. What truly sets successful tech vendors apart is their ability to demonstrate clear, measurable business value and return on investment (ROI) to their customers. This shift is driven by evolving buyer expectations, economic pressures, and the need for technology investments to deliver tangible outcomes aligned with broader business goals.

Why ROI and business value matter more than ever

The market environment has transformed significantly in recent years. Economic uncertainties and tighter IT budgets mean that decision-makers—from CFOs to CIOs—are monitoring investments with higher levels of scrutiny. Digital transformation must prove its worth through quantifiable results.

Three key forces are shaping this new reality:

  • Economic pressure: Organizations must justify every expenditure, making financial accountability paramount.
  • Rapid technological change: Businesses need to adopt solutions that not only innovate but provide competitive advantages.
  • Increased accountability: IT leaders are under growing pressure to demonstrate measurable impact to stakeholders.

In this context, ROI has become the deciding factor for investment decisions. It translates technology benefits into financial terms, aligns technology initiatives with strategic business objectives, and reduces risks by offering assurance through proven value.

Moving beyond features: how to prove business value

Tech buyers today demand more than product specs—they want evidence of how a solution will improve their operations, reduce costs, or increase revenue. To meet this demand, vendors must embrace a comprehensive, data-driven approach to showcase business value:

  • Use data-backed documentation: Whitepapers, case studies, and analyst reports grounded in credible research help tell a compelling story.
  • Offer tailored financial models: Interactive ROI calculators and TCO analyses customized to specific client scenarios provide clarity and confidence.
  • Highlight operational KPIs: Metrics like productivity gains, time savings, and efficiency improvements resonate alongside financial data.
  • Leverage customer insights: Real-world success stories and testimonials add authenticity and build trust.

A holistic approach to business value

Demonstrating business value requires more than just numbers—it demands a strategic, customer-centric mindset:

  • Validate with industry research: Third-party validation from trusted sources enhances credibility and trust.
  • Tailor to customer needs: Align your messaging with the unique challenges and goals of each prospect.
  • Present a multifaceted value proposition: Beyond cost savings, emphasize strategic benefits such as improved agility, innovation enablement, and enhanced customer experience.

Why IDC Is your ideal partner for business value success

At IDC, we specialize in supporting tech vendors quantify and communicate the real-world impact of their solutions. Our Business Value services combine rigorous research, tailored financial analysis, and compelling storytelling to empower your sales and marketing teams. We provide:

  • Detailed ROI and TCO models that resonate with CFOs and finance teams.
  • Strategic presentations and case studies that speak to CIOs and IT decision-makers.
  • Training and tools to equip your sales force to confidently address objections and demonstrate value.

By partnering with IDC, you gain access to trusted expertise and proven methodologies that accelerate buyer journeys, reduce sales cycles, and ultimately drive revenue growth.

Final thoughts

In a market where every investment must have a return, demonstrating ROI and business value is essential. Tech vendors who can clearly articulate the economic and operational benefits of their solutions will not only win more deals but build lasting partnerships grounded in trust and measurable success.

Are you ready to unlock the full potential of your technology offerings by proving their true business value? Connect with us to learn how IDC can help you transform your sales approach and drive impactful results.

Lynn-Kristin Thorenz - Associate Vice President, Research & Consulting - IDC

Analyst Profile
Lynn-Kristin Thorenz is Associate Vice President, Research & Consulting. In her role, Lynn manages IDC’s consulting and research business in Germany and Switzerland and is responsible for the successful delivery of IDC’s local portfolio which includes standard research products, Go-to-Market Solutions and individual client projects. She works closely with IDC's clients to understand their specific needs and requirements and to tailor solutions which support their business objectives. Lynn is also responsible for the strategic development of the complete range of IDC's local research and consulting activities around Digital Transformation and IDC’s 3rd Platform Technologies.

Direct to satellite communications won’t be a big money spinner straight off

Smartphone to satellite direct communications becomes a commercial service in the US on 23rd July with the launch of the ‘T-Satellite’ service on T-Mobile via SpaceX Starlink.

It is both a technological achievement and rather an underwhelming event following the hype that has gone into the subject over the last two years.

D2D is not going to meet some of the overheated expectations of the space industry as its next great white hope.

It will not produce billions of new short term revenues.

What it will do to begin with is provide a very useful emergency and texting service. More will come later.

Route one – need new phones

D2D has already evolved a long way over a short time.

As it started off, it was a deal between phone makers and existing satellite operators, notably the fist-generation LEO systems Iridium and Globalstar.

With new chips in smartphones which could work on these operators’ frequencies, D2D service could commence, and a couple of years ago the big smartphone chipmakers began to look into tieups to make this work.

This was a buzz theme at Mobile World Congress in 2023.

Qualcomm had just signed up to work on D2D with Iridium, and Samsung and Mediatek were also looking at deals with smartphone makers.

Only one of those deals stuck – Apple and Globalstar.

That deal, in which all iPhones produced from the 14 series onwards work on Globalstar frequencies as well as the usual cellular ones, has subsequently been enlarged and Apple is now the primary backer of the next generation of Globalstar satellites.

The Apple service at the moment is free. The other putative tieups however came to nothing because monetising service via this route would have been very complex.

Route two – needing new satellites

Instead D2D is moving emphatically towards service via a second option – using terrestrial cellular operator frequency.

In theory, this means that all phones should be able to use the service – a TAM of seven billion or so of phones.

Because of that, it was always the most logical way forward, but it did imply that investment needed to be made in new satellites which could work on those cellular frequencies.

Starlink had the inside track for this because it could adapt satellites it already planned to launch.

This move made the business model much more simple: service would be sold by the mobile operator and the satellite system would be like tower cellular infrastructure.

A question of politics as well as investment

Starlink however means the divisive figure of Elon Musk and there has been a lot of reticence in the telecoms industry to the emerging D2D industry being dominated by a satellite system he controls.

This reticence has helped American rivals AST SpaceMobile and Lynk Global find backing. Both are startups and ambitious and needs lots of capital. AST in particular looks set to find the resources to launch a global system of broadband D2D capable of much more than emergency messaging. It has found backing from T-Mobile’s US mobile industry rivals AT&T and Verizon, and Google among others.

Vodafone has done a joint venture deal with AST SpaceMobile to run service in Europe.

The move to cellular operator frequency moves the D2D business squarely into the mobile operators’ court.

Service can only work through them.

Unsurprisingly they want to integrate D2D service into their existing tariff offerings.

At present users are restricted to low rate messaging and testing on Starlink so far has shown that only some smartphones work well on the service.

However technology is moving fast. AST is aiming at broadband communications, and Vodafone aims to have its JV service up and running in Europe in 2026.

More in the works

Meanwhile SpaceX, ever ambitious and trying to push the boundaries, wants to orbit some of its forthcoming satellites closer to the Earth. It also wants to increase their power output. That would bring its D2D performance to rival that of AST. And Starlink launches frequently and can put capacity into space more quickly.

The latest and forthcoming work of standards body 3GPP will improve the reception and signal performance with satellites of new smartphone chipsets. Further out D2D may spread out into further services such as vehicle communications.

So while the first steps in D2D have been smaller than the technology’s first boosters claimed, longer term it has substantial potential. Hence the big mobile players have made or are considering substantial investments which go well beyond the payback from messaging service.

Already though the launch of emergency satellite messaging is a major technological milestone in global communications.

Getting the small antenna on a smartphone to communicate with a satellite moving across the skey hundreds of kilometres above it sounds a long shot, and it is.

To paraphrase the first man on the moon, Neil Armstrong, one small step for the telecoms industry, but one great leap for mankind.

Learn more today with IDC

Simon Baker - Senior Research Director - IDC

Analyst Profile
Simon Baker is responsible for mobile phone research across Europe. He also supervises this research in the Middle East and Africa. He provides detailed insight on a wide range of IDC clients, both at a regional level and globally, drawing from his extensive experience of the industry's evolution over the last two decades across developed and emerging markets. As a coordinator of IDC's global mobile phone forecasting team, especially on 5G technologies, Simon is a regular commentator on worldwide developments in the mobile industry through the IDC EMEA blog and through other articles in media such as FierceTelecom. Simon has been quoted in numerous media outlets including Bloomberg, Forbes and the South China Morning Post, and appeared on Bloomberg Television.

At the 2025 NATO Summit in The Hague a few weeks ago, member states pledged to allocate 5% of their annual GDP to core defense requirements and defense- and security-related expenditures by 2035. This represents a significant departure from the alliance’s longstanding 2% benchmark, particularly given that the current average defense spending among NATO members only marginally meets the 2% target.

European nations constitute the majority of NATO’s members. And since the onset of Russia’s invasion of Ukraine, several Eastern European countries—such as Poland—have substantially increased their defense budgets. Nevertheless, many European allies remain below the alliance average, rendering the new 5% objective highly ambitious. The United States continues to lead in defense investment, with expenditures approaching $1 trillion in 2024— double the combined defense spending of Europe and Canada — and has been an advocate for heightened commitments among NATO.

The new target of 5% of GDP is structured to address both immediate military needs and broader security challenges, with an ideal split of spending among 2 categories:

3.5% of GDP: core defense requirements

  • Purpose: This portion is dedicated to traditional military expenditures.
  • Coverage: Includes funding for active personnel, acquisition and maintenance of weapons systems, military equipment, R&D, and operational readiness.

1.5% of GDP: defense and security-related investments

  • Purpose: This segment is allocated to areas that support and enhance national and alliance security beyond conventional military assets.
  • Coverage: Encompasses investments in critical infrastructure (such as energy grids, transportation networks, and communication systems), network defense, and resilience against hybrid threats.

Direct ICT Spending Impact

Core defense Spending: A larger budget is expected to drive more funding for defense organizations and spark a ripple effect in ICT spending. According to IDC Worldwide ICT Spending Guide Enterprise and SMB by Industry, aerospace and defense ICT investments in Europe will top $11 billion in 2025—about 1% of the region’s total ICT expenditure.

Military modernization efforts are focused on upgrading command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) systems, strengthening cyber defenses, integrating artificial intelligence for battlefield operations, and enhancing encryption to secure communications and protect against cyber threats. However, this category will likely represent only a small portion of the overall 3.5% GDP allocation to core defense requirements.

Assuming the 3.5% target equates to approximately $665 billion, it is expected that initially less than $20 billion will be directed towards digital modernization and related technologies. This restrained allocation stems from several pressing priorities:

  • Many NATO members must rearm and modernize legacy military equipment, much of which is outdated or exceeded its operational life.
  • There is an urgent need to rebuild naval fleets and replenish armament supplies, particularly after significant stocks were transferred in support of Ukraine.
  • Substantial investment in unmanned aerial systems (drones), which are increasingly central to modern warfare, will also consume a major share of the available resources.

Therefore, while digital modernization is strategically important, the immediate proportion of defense spending dedicated to these initiatives will be modest in comparison to the broader requirements of re-equipping and reinforcing conventional military forces. Over time, this share may increase as foundational rearmament needs are addressed and digital technologies become further integrated into military operations.

Indirect ICT spending impact

Defense and security-related investments: Efforts are focused on securing critical infrastructure from both cyber and physical threats, enhancing national and international cybersecurity through advanced tools, investing in IoT and digital twin technologies for real-time monitoring, and promoting post-quantum cryptography and secure digital identities. However, the most significant portion of spending in this area will be dedicated to fundamental cybersecurity measures and the development of sovereign data and cloud capabilities. Much of this investment will address foundational requirements, such as fortifying existing networks, implementing robust data protection protocols, and ensuring compliance with national security standards.

While initiatives involving emerging technologies—such as post-quantum cryptography—are important for long-term resilience, these areas are likely to attract only limited funding initially. The focus will remain predominantly on basic cybersecurity infrastructure and sovereign data management until Europe further develops a robust innovation base in the defense technology sector. Heavy investment in more advanced and experimental digital solutions will depend on the establishment of this foundation and the maturation of European defense-driven technological ecosystems.

Induced ICT spending impact

This growth will create new opportunities for core defense solutions and benefit related industries, fueling wider momentum in the Defense Ecosystem. This momentum has therefore set off significant induced ICT spending, especially among major European defense contractors. As these companies prepare to deliver more advanced and diverse products and services, the demand for innovative IT solutions and digital transformation initiatives has surged. This effect spans not only traditional leaders such as Leonardo, Dassault, and Rheinmetall, but also extends to BAE Systems, SAAB, Indra, Thales, and Airbus, among others.

The current environment provides a strong opportunity for the European defense industry to enhance its position in the global market. By accelerating investments in areas such as digital platforms, cybersecurity, cloud infrastructure, and advanced analytics, the sector can differentiate itself while building greater resilience and competitive strength. Examples of current IT and digital transformation-related initiatives include:

  • Development of secure, sovereign cloud platforms for defense applications and data management.
  • Deployment of AI-driven command and control systems to improve operational decision-making and mission effectiveness.
  • Launch of pan-European projects to promote interoperability, digital sovereignty, and cybersecurity across defense networks, often supported by the European Defence Fund and broader EU digital policy frameworks.

These initiatives foster a more interconnected and technologically advanced defense ecosystem, ensuring that European contractors can respond to evolving demands and capture new growth opportunities in a global context

NATO’s new 5% GDP spending target signals a major shift for Europe’s defense sector, promising record investment in military capabilities and key enabling technologies by 2035. However, long-term commitment is uncertain, as future governments may redefine priorities.

This shift opens the door for technology providers—whether established contractors or innovative startups—to play an essential role in shaping the continent’s security future.

For technology providers, the key imperatives are clear:

  • Make the defense market a top priority. With traditional defense budgets swelling and new funding streams available, tech vendors – especially those historically focused on enterprise or civil solutions – should prioritize defense within their broader industry strategies. Consider how your technology – especially AI-driven solutions for logistics, scheduling, or intelligent automation – could be adapted for military use. With rising defense investment and a growing need for innovation, now is the time to explore how your products can address emerging defense challenges and open new markets.
  • Embrace broader collaboration: Leverage increased funding and European Union support for joint ventures and R&D initiatives to accelerate adoption and scale innovation across national boundaries.
  • Drive dual-use innovation: Develop technologies that bridge defense and civilian markets, maximizing addressable opportunity while supporting national security objectives. In doing so, it is essential also to consider the spillover effects beyond pure core defense spending in adjacent sectors.

The path forward demands agility, innovation, and collaboration, but the rewards – in terms of both market opportunity and societal impact – are substantial.

To learn more about how ongoing geopolitical dynamics are shaping IT spending strategies, visit IDC’s Digital Economy Strategies page.

Lapo Fioretti - Senior Research Analyst - IDC

Analyst Profile
Lapo Fioretti is a Senior Research analyst in IDC Digital Business Research Group, leading the European Emerging Technologies Strategies research. In his role, he advises ICT players on how European organizations leverage new technologies to create business value and achieve growth and analyzes the development and impact of emerging trends on the markets. Fioretti also co-leads the IDC Worldwide MacroTech Research program, focused on the intertwined connection between the Economical and Digital worlds - analyzing the impact key MacroEconomic factors have on the digital landscape and viceversa, how technologies are impacting economies around the world.

Over the past decade, I’ve watched healthcare providers invest in electronic health records (EHRs), revenue cycle management (RCM), and a broad range of health IT solution areas spanning clinical, operational, and administrative functions. Yet, one issue continues to drain resources and morale like no other: prior authorization, also known as “prior auth.” Despite being intended to ensure appropriate care and control costs, in my analysis, prior auth costs the U.S. healthcare system at least $41.4 billion to $55.8 billion annually, at least, depending on how you model and factor in labor costs, delays, and the downstream clinical impact. What is even more bothersome is that prior auth isn’t just an operational inefficiency but a symptom of a deeper failure to prioritize system redesign over entrenched inefficiencies, temporary workarounds, and conflicting incentives.

Why Prior Auth Won’t Fix Itself

What I’ve come to believe, contrary to prevailing narratives, is that the prior auth crisis is not a failure of process or technology, but people and mindset. For years, U.S. healthcare leaders, particularly within provider organizations, have largely abdicated meaningful engagement with system redesign or resistance to imposing external forces. Instead, they’ve defaulted to compliance despite any dysfunction, relying on short-term patches, manual workarounds, and narrowly scoped initiatives to ensure payment. Most efforts have been reactive, designed to navigate and endure the complexity than challenge it.

Survey data from the American Medical Association (AMA) paints a stark picture. Physicians and their teams spend 13 hours a week handling an average of 39 prior authorizations per doctor, so burdensome that 40% of practices have staff solely dedicated to it. Nearly 9 in 10 physicians report it drives burnout and inflates healthcare utilization. Even more troubling, 94% say prior auth harms clinical outcomes, 93% say it causes care delays, 82% report it leads to treatment abandonment, and 29% cite serious adverse events as a direct result.[1]

Underneath any cultural resignation is the sense that such administrative complexity is “simply healthcare,” and the sheer magnitude of it is “how U.S. healthcare works.” This has shaped decades of efforts and investments that have further baked such dysfunction into the very DNA of the system. By not challenging and, in turn, reengineering prior auth from the ground up, it was standardized. The problem has not only hardened but has also been operationalized and institutionalized, resulting in such friction and colossal costs.

The problem with prior auth isn’t that it’s only expensive to do, but also that it’s resistant to change. Unlike RCM, which has evolved over the years toward better end-to-end, front-loaded models that begin well before the claim is filed or the patient is even seen, prior auth too often gets triggered late in the care episode, after key decisions have been made. It’s still mostly payer-facing and payer-driven in the continuum of care, with misaligned, frequently conflicting incentives and inconsistent criteria across the board, except in the case of “payviders” or integrated delivery networks, where the divide is less pronounced and may promote rather than block collaboration despite it needing to be more in the patient’s or member’s interest than the system for true value-based care delivery.

U.S. healthcare providers have repeatedly mistaken digitization for modernization. Converting paper into PDFs instead of structured data, automating outdated steps, or adding a portal to a broken process. These were not transformative moves. At best, they converted paper files into EHRs or manual billing into RCM, without questioning the process design behind them. Does it drive approval any faster? Does it reduce burden or improve care quality and experiences? Rarely. Even traditional automation tools, like RPA, while helpful for repetitive administrative tasks, were never built to handle unstructured data or the dynamic, exception-heavy nature of prior authorization workflows. These tools, in essence, served more as digital band-aids over deep systemic wounds, not solutions.

Market Signals Tell Us to Move On

According to IDC survey data, 52.5% of U.S. healthcare providers are now adopting composable IT architectures to drive electronic prior auth (ePA), moving toward modular, plug-and-play systems designed for agility and continuous evolution. Meanwhile, only 6.6% remain dependent on rigid, custom-built platforms. The message is clear: the market is shifting toward flexibility, interoperability, and intelligent orchestration.

I won’t go so far as to say the tide is turning, but signals are getting louder. Across the board, I’m seeing more healthcare leaders on both the technology buyer and supplier sides acknowledging that traditional automation has reached its limits. The complexity of an area like prior auth demands something more adaptive, scalable, and intelligent.

Enter agentic AI, not just as another layer of automation, but a new class of automation. Where agents shine is that they can bridge the gap between automation with intelligence, autonomy, and context awareness, working not just faster, but smarter. As opposed to traditional rule-based systems or narrowly trained models, agentic AI can adapt, interpret, and learn on the fly. This is a significant leap from simply executing pre-coded functions.

What sets agents further apart is their ability to perform zero-shot reasoning, as well as their capability to handle new inputs or scenarios that haven’t been trained on by leveraging generalized knowledge across domains. This adaptability reassures healthcare leaders that agentic AI can function even in the face of edge cases, real-time policy updates, and unstructured clinical complexity, making it particularly well-suited for prior auth, where variability is the norm, not the exception.

Rather than following static rulesets or requiring periodic retraining, agentic AI can:

  • Interpret unstructured data by leveraging NLP and LLMs to extract relevant information from free-text sources such as physician notes, discharge summaries, radiology reports, and lab results. This enables the system to understand the clinical rationale behind a treatment or diagnostic order, allowing for more accurate and context-aware authorization decisions without requiring structured, template-based documentation.
  • Adapt dynamically to evolving payer rules, rather than relying on static rule engines or periodic manual updates. Agentic AI can ingest real-time payer policy feeds, API-accessible rule libraries, or even scrape payer portals (when necessary) to automatically apply the most current criteria. This eliminates the lag between policy changes and system response, reducing unnecessary denials caused by outdated logic and helping ensure compliance is maintained proactively.
  • Execute complex, multi-system workflows autonomously by orchestrating interactions across tech stacks and layers, be it EHRs, eligibility verification systems, third-party prior auth platforms, and payer endpoints. It can initiate requests, validate documentation, follow up on pending statuses, and escalate exceptions without manual handoffs. This end-to-end orchestration eliminates redundant clicks, fragmented touchpoints, and disconnected workflows that slow the process.
  • Continuously learn and optimize performance with built-in feedback loops. Agentic AI can analyze the outcomes of approvals, denials, resubmissions, and appeals, and use that data to fine-tune logic over time. This continuous optimization instills confidence in healthcare leaders that the loops can enhance prior auth quality, increase first-pass rates, and minimize administrative rework, leading to improved financial and operational outcomes.

The silver lining is that this isn’t a vision but is already happening.

What This Means for U.S. Healthcare Providers

For CIOs:

  • A scalable, modular approach to intelligent automation that aligns with existing IT investments.
  • Rather than costly rip-and-replace initiatives, agentic solutions can integrate more seamlessly (e.g., into EHRs, practice management, and RCM systems) via APIs, FHIR interfaces, and event-driven architectures.
  • Agents can be further embedded within existing workflows or operate as orchestration layers on top of legacy infrastructure.
  • Composability, interoperability, and accelerated ROI that support modernization without disruption, delivering improved speed, flexibility, and clinical alignment.

For CMIOs/CNIOs:

  • Clinically intelligent automation that complements rather than complicates workflows.
  • Agents can interpret free-text notes, align with evidence-based care protocols, and apply payer-specific criteria without forcing changes in behavior, helping to reduce ‘death by a thousand clicks’ and ‘unlimited mouse miles’ while still supporting contextual decision-making, improving accuracy and timeliness of authorization workflows without burden.
  • Preservation of clinician experience while improving patient experiences and outcomes.

For RCM Leaders:

  • Immediate and measurable value by dynamically aligning clinical submissions with payer policies in real time, shortening authorization turnaround times through intelligent workflow automation, and improving clean claim rates by ensuring complete and compliant documentation at the point of capture.
  • Real-time visibility into authorization status, exception handling, and appeal triggers, empowering billing teams to work smarter, not harder, and to optimize reimbursement without unnecessary overhead.

Beyond these roles, the greater opportunity lies in agentic AI laying the groundwork for intelligent automation across the board, thereby elevating healthcare provider workflows and operations to be more adaptive, resilient, and scalable altogether.

A Final Thought: Don’t Automate Dysfunction

I’ll close with this: stop framing prior auth as solely a technical or workflow issue when it’s not. It’s more of a systemic and cultural issue and distinctly related to U.S. healthcare, reflecting how the experience has been deprioritized in favor of bureaucracy. If AI gets layered on top of that without redesigning the underlying processes, then it will just be scaling dysfunction and be largely counterproductive. This is not to say agentic AI is a silver bullet, no, but it offers a way forward, one that can help automate and distribute intelligence rather than dysfunction. The question isn’t whether we should adopt it, but how quickly, responsibly, and effectively we can do so. If prior auth remains a sinkhole for U.S. healthcare in five to ten years, it won’t be due to a lack of innovation or tools, but rather a lack of leadership, imagination, and willpower.

If you are a client or subscribe to our research, access the full report here: From Administrative Drain to Clinical Gain: The Case for Agentic AI in Prior Authorization for Healthcare Providers. To become a client or learn more about our research, please visit idc.com.

[1] Prior Authorization (PA) Physician Survey 2024 | AMA. Available at: https://www.ama-assn.org/system/files/prior-authorization-survey.pdf (Accessed: 17 July 2025).

Mutaz Shegewi - Sr. Research Director - IDC

Analyst Profile
Mutaz Shegewi leads the provider research practice at IDC Health Insights covering topics of most relevance to healthcare provider organizations looking to digitally transform and become more digitally native than their competition. Mutaz advises the executive, clinical, and technical leadership of the world's foremost health information technology supplier and buyer organizations by producing data-driven research and thought-leadership insights that help to navigate strategic challenges in health information technology and transform complexity to clarity in decision-making that would decrease costs, enhance quality, optimize access, improve patient safety, and champion patient experience. Mutaz is passionate about strengthening healthcare systems through the dynamic interrelations between technology, patients, and providers by combining industry, professional, academic, technical and global expertise in healthcare, policy, business, management, research, consulting, and medicine.