AI Taking Central Role in European Application Services

The application development and maintenance (ADM) market in Europe is fundamentally evolving as generative AI (GenAI) becomes instrumental in emerging service delivery models, according to a new research report published today by Information Services Group (ISG) (Nasdaq: III), a global AI-centered technology research and advisory firm.

The 2025 ISG Provider Lens AI-Driven ADM Services report for Europe finds that over the past year, enterprises have begun integrating GenAI agents into their delivery lifecycles, changing how applications are developed, tested and managed. The use of GenAI has advanced from limited pilots in code generation and quality assurance into end-to-end delivery lifecycles. Organizations use GenAI for targeted code modernization rather than entirely replacing high-value legacy systems, as these systems remain central to enterprise technology stacks.

“Europe’s ADM market is entering a phase of co-intelligence where human engineers and AI systems work together to achieve operational excellence,” said Matthias Paletta, director at ISG. “Enterprises are realizing tangible performance improvements, while complying with regulations, by embedding AI into every stage of their software lifecycle.”

Enterprises are expanding GenAI use beyond code generation to continuous code review, predictive observability and compliance mapping. AI agents are also collaboratively supporting engineering teams, becoming co-owners of service delivery. As AI becomes vital to software development and operations, European governments and enterprises are accelerating investments in sovereign AI infrastructure, the report says. These initiatives include Germany’s planned GenAI gigafactories and European Union (EU) programs such as GenAI4EU and InvestAI, aimed at enabling secure, open innovation.

Enterprises in Europe are standardizing the adoption of GenAI through service engagements tied to business outcomes, ISG says. Rather than focusing solely on productivity gains to measure success, organizations are benchmarking AI-driven ADM services against business key performance indicators, including faster time to value and higher customer experience ratings. However, many still face challenges in meeting data governance and compliance requirements under the General Data Protection Regulation (GDPR) and the EU AI Act, which demand transparency, auditability and strict access controls, the report says.