what is ai chatbot and how does it work

Chatbots are revolutionary products. Artificial Intelligence or AI Chatbots expand the capabilities and takes the performance of this technology up a notch. They are being used by industries to stay connected with their audience around the clock and facilitate answers to their queries.    

Nearly 40% of global internet users are choosing to interact with chatbots rather than virtual agents. Additionally, with major industries including retail and healthcare embracing digital technology, the future of AI chatbots is rather a bright one!  

Let’s start with the basics of AI Chatbot and learn how it benefits a business.   

What is an AI Chatbot?   

AI chatbots are automated bots that are powered by AI technology. These chatbots simulate human-like conversations and offer real-time responses/answers to customer/user queries, among other things.   

These chatbots understand natural language processing (NLP) and use speech recognition technologies to understand and interpret human language/text or voice commands. AI chatbot apps use AI-driven conversational technology that allows them to engage with customers or users and respond to spoken or written queries.   

Features Of Modern AI Chatbot
Features Of Modern AI Chatbot

These chatbots use machine learning (ML) algorithms to constantly improve themselves in terms of accuracy and understanding user queries. The longer an AI chatbot solutions has been in use, the more relevant are its responses. Its deep learning capabilities make the usability and accuracy graph steeper for an AI chatbot.   

Traditionally, the scope of chatbot technology was limited. They were text-based and were trained to give responses to only a limited set of basic queries with answers that had been pre-written by the developer. This limited their functionality as they were unable to answer any question that was out of the syllabus or not predicted by the chatbot’s developers.   

Over time, chatbots have evolved. With more rules and natural language processing integrations, end users are being able to use them more conversationally.   

Differences Between Chatbot and AI Chatbot

Let’s look at some of the differences between a traditional or rule-based chatbot and an AI chatbot:   

Requires pre-programmed commands to operate  Natural language processing (NLP)  
User inputs are limited Users can put relevant input and receive output 
Pre-programmed conversational flow Machine and deep learning; learn from input over the years 
Not able to detect synonyms Can sense the intent of the query 

How Does an AI Chatbot Work?   

Having the basic knowledge about what an AI chatbot is and how is it different from a normal or rule-based chatbot, let’s now look at how an AI chatbot work.   

Using artificial intelligence (AI) and NLP technology, a chatbot is able to understand open-ended queries and sentence structures. It then processes the data and gradually gets better at providing replies.   

AI chatbots do their own homework instead of giving responses on a pre-trained outcome. They attempt to understand the intent of the user input, and once they do that, they offer a response they think is best suited to the provided and existing data.    

Over time, just like we humans grow with observation and evolve in our actions., so does an AI chatbot. They observe the correct and incorrect replies and understand the ‘right’ better. They thus require a training and trial period to give the most relevant answers.   

Once there have been enough observations, AI chatbots accurately identify the language, intent, and context, and perform satisfactorily in accuracy.   

How An AI Chatbot Works?
Work Of An AI Chatbot

How Does an AI Chatbot Benefit Businesses?   

AI Chatbots have taken over the business world. Establishments across multiple industries are relying on this technology for customer queries and engagement. And it comes as no surprise. The advantages that are offered by AI Chatbot technology are game-changing for a business.  

Chatbots are reported to have the ability to increase engagement by up to 90% and sales by 67%. In the year 2020, 57% of businesses stated that conversational chatbots deliver substantial ROI for minimal effort.   

Here are some of the benefits that an AI conversational chatbot offers a business:   

Benefits Of Chatbot For A Business
Benefits Of Chatbot For A Business

1. Enhanced customer support and engagement  

Over 87% of customers said in a Microsoft report that rule-based and AI chatbots are effective in resolving their issues. With the benefits served by AI chatbot solutions in customer service, this statement comes as no surprise.   

Emailing, or calling humans were some of the traditional ways of seeking answers to common or complex queries. This used to demand significant time, effort, and patience. Moreover, for businesses this meant recruiting customer service staff and offering them space, equipment, and constant training.   

However, with the technological advancements and introduction of AI chatbots, this whole process improved by leaps and bounds. AI chatbots can handle multiple queries around, around the clock, with efficiency. These AI chatbots free up employees from repetitive queries and eliminate the room for human errors, offering accurate responses to customer/ user queries.   

Furthermore, the need to wait in long customer service queues for call-based customer support or to await email responses is eliminated with AI chatbots. They offer instant responses to user queries, facilitating faster response times and enhancing customer service.   

This enhanced customer service converts into user engagement, satisfaction, and customer loyalty.   

2. Reduced costs and higher operational efficiencies  

AI chatbots replace customer service employees, some if not all, in most cases. As the number of customer service staff requirements goes down, so does the recruiting, retaining, training, and related administrative costs and efforts. This brings in a lot of difference in the company’s balance sheet.   

On the other hand, an AI chatbot might have some contextual limitations, but none of the operational constraints. It can answer queries 24*7 as well as during peak periods and offer an additional support option. It allows humans to get involved at later stages of the conversation, only if required.   

A report stated that 80% of customers seek answers to their queries within 2 minutes. Moreover, around 49% of users/customers would be leaving your website if they do not see someone taking initiative or typing within 1 minute. This is a highly risky and narrow window.   

However, with AI chatbots, the responses are instant. This avoids the loss of a potential customer and hence, business and revenue.   

Moreover, it offers multi-channel and multi-lingual support, which makes it all the more accessible and practical.   

Thus, businesses are not required to scale up staff during periods of increased activity or implement a round-the-clock support staff.   

3. Lead generation  

Chatbots provide customers with all the required and relevant information immediately when required, responding well within the attention span of a user which is as less as 8 seconds as per multiple studies. This helps a customer make informed choices about products or services, with complete focus.   

This in turn helps businesses with sales lead generation and enhanced conversion rates. A purchase that needs more intervention, especially a human one, may be transferred to a trained sales agent at later stages, with the chatbot efficiently qualifying the lead.   

4. Actionable insights and personalized recommendations  

AI chatbots help a business gain actionable insights from data generated during customer conversations, helping a business identify areas of improvement, and more targeted marketing campaigns as well as offer personalized recommendations to the customer.   

AI conversational chatbots allow a business to gather insights into customer tastes and preferences, patterns and requirements, and track, target, and improve key performance metrics such as conversion rate or response time.  

There are multiple AI chatbots available in the marketplace that are taking over the world ChatGPT, Chatspot.ai, Botsify, Zendesk answer bot, etc. These AI chatbots could be used by availing of subscription plans.   

To choose the best AI chatbot, a business needs to identify and define its exact requirements and choose accordingly. It is even better to build your own AI chatbot to leverage increased customization.   


Customers Inclined for Customer Services
Customers Inclined for Customer Services

Businesses, please take note.   

Now this proactive customer service is possible through the usage of AI chatbots.   

They are the present and future of customer service and much more. AI conversational chatbots help businesses save their resources, and costs and increase the efficiency of their customer service.   

And they are easy to use and manage. Thus, businesses should invest in this AI conversational chatbot technology right away. It has the power to transform the way businesses and customers interact and benefit both parties, alike.   

Additionally, if we are saying that this technology is essential for every business to implement, we would also provide our readers with the best software development and emerging technologies company to build their AI chatbots for a growing business.   

BigOhTech, has been serving clients for more than 12 years. We specialize in software development, staff augmentation, and emerging technology integration. With the most practical and innovative solutions, we help our clients bridge the gap between their business and technology.   

We offer a wide range of AI chatbot solutions. These services include AI chatbot consultation and ideation, AI chatbot development, maintenance, NLP/NLU-based WhatsApp chatbot, team inbox chatbot, etc.   

Our dedicated development team builds the most feasible, engaging, and reliable AI chatbots. We develop chatbots for multiple channels such as Web, WhatsApp, Telegram, Facebook, and many more, helping businesses increase their revenue by 10X.   

Get a step closer to your AI chatbot solution! 


Q1. Are AI chatbots effective?   

AI chatbots are highly effective technology for both businesses and customers. A Gartner report states that by 2024, 38% of organizations would plan to implement an AI chatbot.   

Let’s look at some of the benefits both these parties get from AI chatbot solutions:  


Improved customer service and engagement  
Faster response times and reduced bounced rates  
Lead generation  
Increased sales  
Reduced costs   
Conversational marketing  

24*7 customer service  
More personalized experience  
Multi-lingual and channel support  
Proactive customer service  
Faster responses  
Saved time and efforts
Thus, both businesses and customers stand to gain from AI chatbot usage. In fact, a report by Digital Signage Today states that 75% to 90% of queries would be handled by AI chatbots in the near future.    

Q2. What are the disadvantages of AI chatbots for business?   

Some disadvantages of AI chatbots are:  

a. Data security while transferring the collected data from the AI chatbot to the respective business CRM system  
b. Inability to identify emotions  
c. Needs time to reach accuracy


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