What are Chatbots? | The Beginner’s Guide

Chatbots have been quite the buzz word for several years, but what actually are they, where did they come from, and how are they used? If you have the same questions, read on to get a beginner’s overview. We’ll cover 4 topics:

1. What are chatbots?
2. A brief history of chatbots and their evolution
3. What value can they provide?
4. How are they actually being used? (30+ applications)

1. What are chatbots?

“Chatbots” are computer programs that use artificial intelligence (AI), natural language processing (NLP), and natural language understanding (NLU) to enable them to understand & respond to human speech in a very human-like way. In fact, they are often personified and given names to emphasize this aspect, such as Apple’s Siri, IBM’s Watson, and Samsung’s Bixby.

While the underlying technology can be complex, chatbots are actually packaged and presented in quite a user-friendly, approachable way:

1. Text message interface: To use a chatbot, you simply send it a text message! It’s that easy! Now, you can do so via various mechanisms: via phone, a web browser, Slack, and other communication tools, but it’s no different from texting your family or friends.
2. Admin/skill-builder: The admin panel is the “control panel” and provides key features to help administrators build, deploy, and manage their chatbots and their corresponding skills that then get deployed for use by employees or customers. Such features include adoption/deployment analytics, an area to build your chatbot’s dialog, brand color customization, business tool integration, and various deployment options, like those mentioned above.

Now, let’s tackle another question: is there a difference between a “chatbot” and an “AI chatbot”? The short answer is yes!

The major difference between the two is the following: an AI chatbot uses machine learning to continuously learn and understand the intent behind your query, whereas a chatbot is limited to algorithm-based knowledge created by its developers. AI chatbots use machine learning and deep learning to become more accurate over time. The longer an AI chatbot is active, the smarter and more accurate its responses.

That said, striving for market differentiation has led to a plethora of terms and synonyms, such as virtual assistant, conversational AI, digital worker, virtual agent, agent assistant, and conversational AI to name the majority.

Whichever term you come across, remember that most describe the same underlying technology and interaction between human and AI. Rather than focus on the name, pay closer attention to the ease of building skills (are they pre-built or do you build from scratch? Is it easy for anyone to use?), total cost of ownership, and whether its capabilities can address your use cases.

2. A brief history of chatbots and their evolution

Now that we have a better understanding of what chatbots are, let’s understand when they started.

Believe it or not, chatbots have been around since the 1960s, but they were text-based and programmed to reply to a limited set of simple queries with answers that had been pre-written by their developers. They operated like an interactive FAQ; while they work well for those specific questions on which they’ve been trained, those chatbots failed when presented with more complex or new topics because it’s hard for them to process information as quickly as humans do!

These days, advances in AI and deep machine learning have broadened a chatbot’s capabilities and appeal. They can now understand context in a conversation, ask clarifying questions, easily change topics, assume a friendly or professional tone of voice, collect information, tell jokes, integrate with other chatbots, and be deployed on various channels. Even better, chatbots are now integrating with back-end systems to automate their most common tasks.

3. What value can they provide?

Chatbots have provided a tremendous amount of value to businesses, given their human-like mannerisms, low-cost, and ability to improve productivity via self-serve and automation.

In fact, 80% of businesses expect to have some sort of chatbot automation by 2021. To drive that value, businesses build chatbot skills to address their specific use cases, such as helping customers understand return policies or helping employees understand their latest health benefits.

In doing so, businesses with customer-facing chatbots, as well as employee-facing chatbots, have seen value across several dimensions:

1. Cost reduction: Opportunities to reduce costs stem from the need for fewer resources to handle inquiries and the time-savings. According to IBM, $8 billion dollars (USD) could be saved by using chatbots. Internally, IBM realised $107 million in savings (in 2017 alone!) because of using AI in its HR departments. Cost savings can also stem indirectly from productivity improvements.
2. Fast return-on-investment (ROI): A Forrester TEI report, reports an estimated ROI of 337%! While not guaranteed, the ROI is quite high, given the low entry cost and the potential for high-cost savings. Depending on the complexity of your chatbot, most companies see a payback period within months. We’ve even seen payback within days! If you have at least 300 employees, the benefit of a chatbot easily outweighs the cost.
3. Improved productivity: AI chatbots improve self-service and simplify how employees interact with their many business tools, which means less time being frustrated and more time getting stuff done. Chatbot deployments suggest a 75% improvement in time required.
4. Reduced support tickets: Across HR technology and chatbots can enable HR to become more efficient in its funding and operations. HR departments can shift their focus away from managing routine HR issues and towards more complex problems, all while maintaining the same level of service for basic queries.
5. Improved experience: Chatbots provide a lot of advantages that are much harder to quantify, but definitely improve the experience, which matters when users make early first impressions. For example, since chatbots can connect to and navigate your company’s business tools, they’ve been able to simplify many processes that customers and employees frustratingly go through daily. Another example is multi-lingual capabilities that help scale support across geographic boundaries. Further, a lot of thought is put into designing the chatbot experience and dialog, so users receive a much more curated, efficient, and intentional experience. Finally, chatbots don’t take time-off, so they’re available 24/7, which provides customers and employees a continuous line of support.

92% of HR teams agree chatbots and HR technology are going to be important in directing employees toward finding the information they need in the future.

4. How are they actually being used?

Businesses have applied chatbot AI to many aspects of their organization, both customer-facing and employee-facing, to encourage revenue growth, cost savings, and a better overall experience.

For those new to chatbots, this can serve as a good starting point.

For seasoned users, this could help validate your existing deployments and perhaps uncover new applications. If we missed any, let us know!

Customer-facing chatbots

• Customer support: Answer customer inquiries, connect to live agent, trouble-shoot issues, collect customer feedback
• Sales agent: Provide pricing, location information, hours of availability, connect with live sales agent, qualify leads, chat with website visitors, upsell, guided buying, proactive promotional offers, customer retention promotions

Employee-facing chatbots

• IT: Replace laptops, retrieve company policies, purchase accessories, create support tickets, grant tool access
• HR: Transfer employees, send recognition, provide feedback, update personal information, onboard employees, recruiting, resume screening, benefits overview, F.A.Q., collect employee feedback
• Procurement: Review contracts, enable supplier due diligence, automate background checks and followups

The bottom line

Chatbots leverage the latest AI and machine learning to enable easier human interactions and provide better support, which has generated a tremendous amount of value for companies of all sizes. That said, not all chatbots are equal, so consider the total cost of ownership, the capabilities, the technology, and how easily you can address your business’ use cases.