Chances are, you’ve interacted with an AI chatbot or an AI agent recently. Conversational AI technology has skyrocketed in popularity in the past few years, and chatbots are becoming ubiquitous across industries and use cases.
Use this comprehensive guide to get up to speed on everything you need to know about AI chatbots. We’ll cover:
- Definitions
- The rising popularity of AI chatbots
- Key terms
- How AI chatbots work
- Must-have features
- Common use cases
- Benefits
- How to build your own AI chatbot
Whether you’re looking for a quick overview, the best AI chatbots, or advice on customizing your own chatbot, you’re in the right place.
What is an AI chatbot?
An artificial intelligence (AI) chatbot is a software application that mimics human conversation. AI chatbots are often used to automate tasks or answer questions.
Particularly with the rise of large language models (LLMs), the use of AI chatbot has skyrocketed. There are pre-built chatbots that can do anything from provide emotional support to help you find the right used car.
Chatbot statistics
By the numbers, here are a few quick chatbot statistics:
- 88% of customers used an AI chatbot in 2022
- Chatbots are the fastest growing communication channel for brands, rising by 92% from 2019 to 2020 (Startup Bonsai)
- Chatbots can answer up to 79% of routine queries (IBM)
- Chatbots save companies ~30% on customer support costs (Invesp)
- The global chatbot market is expected to reach $27.3 billion by 2030 (Grand View Research)
Why are AI chatbots so popular?
There’s been a rapid increase in AI chatbots – from e-commerce, to insurance companies, to our workplaces. Their rising popularity is largely due to the recent accessibility of AI technology.
Before OpenAI released ChatGPT in 2022, using conversational AI interfaces was reserved for a small portion of the tech-literate population. But after the arrival of free AI chatbots powered by LLMs, open-source API
On top of that, they’re low-cost, 24/7, multilingual, and customizable. When deployed correctly, AI chatbots are an incredible return on investment for companies.
List of key terms
If you’re unfamiliar with artificial intelligence technology, there are a few terms that you’ll need to familiarize yourself with before understanding AI chatbots.
Artificial intelligence
Artificial intelligence is a branch of computer science focused on creating machines with human-level intelligence. The types of tasks they set out to accomplish are typically related to learning, reasoning, problem-solving, and understanding natural language.
Natural language processing (NLP)
Natural language processing (NLP) is a branch of natural language understanding (NLU), which is a branch of AI.
NLP enables machines to understand, interpret, and meaningfully respond to human language. It’s used not only in AI chatbots, but in language translation and speech recognition technology.
Generative AI
Generative AI refers to AI systems that can generate text, images, video, or other output.
Conversational AI
Conversational AI is a branch of AI that focuses on allowing computers to engage in human-like conversations. Through a combination of machine learning and NLP, conversational AI is designed to engage in dialogue with humans, either through text or voice.
AI agent
AI chatbots overlap with the concept of AI agents. An AI agent is a software that performs tasks on behalf of a user. They can automate processes, make decisions, and intelligently interact with their environment.
Both AI chatbots and AI agents use NLP, LLMs, and vector databases. But they differ in their purpose and capability. Chatbots are designed to interact with humans, while agents are designed to complete autonomous tasks.
Many AI chatbots are unable to take autonomous actions, and some AI agents don’t exist in text-based, user-facing forms.
How does an AI chatbot work?
Every time a user interacts with an AI chatbot, there are several complex processes taking place. The process typically begins when the chatbot receives a trigger from a user.
1. User input
Often, a user will prompt an AI chatbot by asking a question via text or voice.
However, AI chatbots can be designed to be triggered by other events, like receiving an email from a certain sender, or observing a KPI hit a target number.
2. Natural language processing
After receiving a trigger, the chatbot will use NLP to break down the user’s message into components, identify the user’s intent, and extract important information from the request.
3. Intent recognition
After processing the input, the chatbot will determine what the user wants – a product recommendation, resetting their password, or advice on crafting a resume.
4. Response generation
An AI chatbot will then generate a response using machine learning models.
5. Context management
As the chatbot interacts with the user, it will keep track of the conversation to maintain context – this ensures its responses remain relevant.
6. Fetch data
If a user is asking for specific information – like how much a product costs, reviews from other users, or what a company’s HR policy says about vacation days – the AI chatbot will fetch the relevant data.
It might do this by connecting to a database, retrieving information from a Knowledge Base, or making an API call.
7. Send response
After identifying the most appropriate, helpful, and relevant response, the AI chatbot will send its generated response to the user. This process repeats until the conversation is resolved.
Must-have features
With the rapid increase of available technology, there will always remain a lack of quality assurance.
The world changed for the better when AI technology became more widely accessible. But it also increased the number of useless and poorly deployed chatbots.
Integration capabilities
If chatbots exist in a vacuum, their purpose is drastically limited. A key purpose of chatbots is their ability to take action into existing systems.
For example, a lead generation chatbot needs to be integrated with a company’s customer relationship management (CRM) system, so that they can update records as they find and qualify new leads.
Or take an e-commerce chatbot: it needs to be integrated with Knowledge Bases that contain information about current stock, return policies, and individual items or models.
Most chatbot platforms will have pre-installed integrations. And flexible platforms will allow chatbot builders to build integrations to any system or platform.
Omnichannel deployment
The most useful AI chatbots are available to use across channels. An organization can deploy their chatbot to their website, but also to their WhatsApp or Facebook Messenger.
It’s always best to meet your users where they are, so AI chatbots are particularly useful when they’re able to send emails or SMS messages.
Advanced analytics
If a chatbot is deployed in order to help achieve a goal – like increase lead generation, make more sales, or handle customer support calls – it needs success metrics.
Whether an organization builds their own chatbot from scratch or uses a platform, they’ll need to set up analytics to measure the outcomes of their chatbot.
Typical analytics will include number and length of interactions, while advanced analytics can measure any facet of a chatbot’s workflow.
Data security
Like any software project, an AI chatbot needs the proper security and privacy guardrails before being deployed to the public.
Data security is particularly important for chatbots that handle any personal data – like names, phone numbers, or addresses. If your chatbot handles data from individuals in the EU, it will need to be GDPR compliant.
Common use cases
Due to their flexible nature, AI chatbots can be deployed in nearly any conversational AI use case.
AI chatbots have long been popular in booking processes like restaurants, airlines, and hotels. And a wider range of industries – like gaming, manufacturing, financial services, and insurance – have all grown in chatbot usage across a diverse set of use cases.
While we can’t cover all their applications, here are a few of the most popular AI chatbot use cases:
Customer support chatbots
Everyone has a customer service chatbot these days. And for good reason – AI chatbots are perfectly suited for customer support use cases.
A customer service chatbot can answer customer questions, dispense information, or share videos about products.
AI chatbots are able to divert significant percentages of calls away from call centers, making them one of the most common use cases.
Internal employee chatbots
While most AI chatbots are external-facing, there’s a growing adoption of internal chatbots within enterprises. These are typically used for HR, IT, or other internal processes.
Internal chatbots often act as the first stage of assistance for employees seeking information about internal procedures. They may interact with a chatbot to schedule days off, call in sick, learn more about their benefits, or get support with a procedural task.
Since internal processes like HR requests take up the time of two employees – the employee and the HR representative – an AI chatbot greatly reduces the cost of internal operations.
Sales chatbots
The majority of chatbots deployed on our platform are part of an organization’s sales process.
A sales chatbot can answer questions, compare models, and give out pricing information. These chatbots are typically part of an AI-enhanced sales funnel, all the way from lead generation to post-purchase follow-ups.
A lead generation chatbot is one of the most common use cases for AI chatbots. They often send emails or messages on WhatsApp or Facebook Messenger, as well as sync up information with a CRM (customer relationship management) system.
Chatbots for bookings and hotels
Booking a hotel is often a straightforward process. Guests investigate the available room options, look at amenities and services, and book their room. It’s a task that’s easily offloaded to an AI chatbot.
That’s why chatbots for hotels are skyrocketing in popularity – they can handle bookings, streamline housekeeping requests, and sell extra services.
Our partner organization has used AI chatbots to solve 75% of guest requests without human involvement and sell extra services to 20% of guests before they arrive at the hotel.
Government chatbots
Government services have traditionally lagged behind the speed and quality of private services – and some are looking to improve the gap with AI chatbots.
Government chatbots have been deployed to help guide citizens through forms and applications, provide status updates, provide voter registration and election information, and provide information about public health or public transport.
Chatbots for healthcare
Healthcare is another industry that is rapidly adopting chatbots. Healthcare chatbots often assist patients by answering basic medical questions, scheduling appointments, and providing information on symptoms and treatments.
By handling routine inquiries, the best healthcare chatbots are able to reduce the burden on medical staff, while simultaneously improving access to information for patients.
Real estate chatbots
Real estate has one of the most widespread adoption rates across industries, due to its high volume of conversational interactions and the need for constant, up-to-date information.
Real estate chatbots can suggest properties, keep track of paperwork, and manage client relationships. They can also coach real estate agents on pitching individual properties or neighborhoods, and qualify leads before setting up a meeting with a realtor.
Benefits of AI chatbots
AI chatbots are popular for a reason. Here are just a few of the benefits of chatbots that explain why they’re the next level of productivity and support.
24/7 availability
One of the standout features of AI chatbots is their ability to operate around the clock. Unlike human employees, chatbots don’t need breaks, sleep, or vacations. They’re always on, ready to assist customers at any time of day or night.
Their 24/7 availability ensures that businesses can provide support whenever it’s needed, enhancing customer satisfaction and ensuring that no query goes unanswered.
Cost-effective
By automating routine tasks AI chatbots can reduce costs of running or scaling an organization.
the need for large customer service teams. This means companies can cut down on labor costs while still delivering high-quality service.
AI chatbots can efficiently handle a wide range of tasks, freeing up human employees to focus on more complex issues. The result? Lower operational costs and a more streamlined workflow, making AI chatbots a smart investment for businesses of all sizes.
Scalability
As businesses grow, so do their customer service demands. AI chatbots are highly scalable, meaning they can handle an increasing number of customer interactions without a drop in performance.
Whether a company is dealing with a few dozen customers or thousands, chatbots can manage the load efficiently, ensuring that every customer receives timely support.
Consistency
Unlike humans, chatbots never have a bad day. They’re able to deliver a high-quality standard of service every time, never varying on tone or accuracy.
Consistent service ensures that users can receive reliable support, no matter when they need it (or how many of them need it at the same time). It builds a strong brand image and higher trust with users, increasing satisfaction across the board.
Data collection and analytics
AI chatbots don’t just interact with customers; they also collect valuable data from every interaction. This data can be analyzed to gain insights into customer behavior, preferences, and pain points.
Businesses can then use these insights to refine their strategies, improve products, and personalize customer experiences.
How to build your own AI chatbot
With all the free chatbot technology on the market, it’s never been easier to build an AI chatbot of your own.
A project that was once reserved for developers, now it's possible for anyone with a computer to build an AI chatbot.
Here’s a step-by-step walkthrough of how to build your own customized AI chatbot:
Define your scope
The first step to create an AI chatbot is simple – scoping. What’s your chatbot going to accomplish? Before building, your team needs to develop a chatbot strategy that includes the predicted ROI of your chatbot.
The purpose of your AI chatbot will determine what capabilities it will need, which will determine the platform you use.
If you use an extensible platform, the world is your oyster. A well-designed AI chatbot can take on any conversational AI task you can dream of.
Once you have your scope down pat, it’s time to pick a platform.
Pick a platform
There are plenty of free AI chatbot platforms, for any need or use case. You can check out our list of the 9 best AI chatbot platforms for a rundown.
There are a few considerations to keep in mind when selecting a platform for your project. Make sure you pick a platform that:
- Has a broad swath of educational resources. There’s always going to be a learning curve, so ensure you’re well-equipped for it.
- Matches your intent. Don’t pick a conversational AI platform that specializes in customer service if you want a sales bot.
- Includes a free tier, so you can test it out before (or without) making a financial commitment.
Build your AI chatbot
You’ve made it: you settled on an idea for a chatbot, you found a platform, and you’re ready to build your own AI chatbot.
The AI chatbot that you build is going to be entirely unique – you have your own vision and your own needs. Part of the process will involve familiarizing yourself with your platform and applying your understanding to your unique roadmap.
Integrate
If you’re looking to connect your AI chatbot to another system or platform – like Hubspot, WhatsApp, or your website – then part of your building process will include integrating your bot to the necessary systems.
If your AI chatbot is going to give out information about which products your company has in stock, you’ll want to connect it to your internal source of truth, typically known as a Knowledge Base.
A Knowledge Base can be a table, document, or website that includes the information your AI chatbot will draw from.
For example, an HR chatbot will use a company’s key policy documents as its Knowledge Base. When an employee asks how to handle a specific situation, the chatbot can use the policy documents to inform its answer.
Testing and iteration
Once you’re done building your AI chatbot, it’s time to make it better. Some builders forget to account for testing and iteration time, but this is a crucial step to deploying a successful chatbot.
Whichever AI chatbot platform you choose, it should have a simulator within the studio that allows you to practice conversations with your chatbot. This is the first step of testing that you’ll use throughout the building process.
Once your build is complete, you’ll be able to send a sample version of your AI chatbot to your friends or colleagues using a URL. You should do this to test out your bot’s functionality before officially deploying it.
Deploy
Once your bot is in a final form, you can release it unto the world. They are a few options for AI chatbot deployment:
- One of the most common deployments is via webchat, typically found on a company’s website
- An SMS chatbot that can send text messages
- An email chatbot that sends, receives, and summarizes messages
- A platform like Slack or Microsoft Teams
- A messaging channel like Telegram, WhatsApp, Instagram, or Facebook Messenger
Monitor
An AI chatbot project doesn’t end after deployment – in fact, deployment is just the beginning. Once it’s out in the world, your AI chatbot starts working for you.
Any AI chatbot platform worth its salt will provide you with continuous chatbot analytics – when people are using it, the topics they ask about, and the platforms people are using to engage with it.
If you want to better understand how to manage and improve your chatbot after deployment, you can check out our free course on Managing your Chatbot.
Build AI chatbots for free
AI chatbots are quickly reaching mass adoption rates amongst enterprises – in customer service, internal operations, and e-commerce. The companies that are slow to adopt will feel the consequences of missing the AI wave.
Botpress is an endlessly extensible bot-building platform built for enterprises. Our stack allows developers to build chatbots and AI agents with any capabilities you could need.
Our enhanced security suite ensures that customer data is always protected, and fully controlled by your development team.
Start building today. It's free.
Or contact our sales team to learn more.
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