The Complete Guide To AI Chatbots: The Future of AI and Automation
Many chatbot applications are powered by AI technology, but some chatbots utilize rules-based logic to interpret and respond to queries, instead of relying ...
AI Chatbots: The Future of AI and Automation \| Capacity

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# The Complete Guide To AI Chatbots: The Future of AI and Automation

by [Team Capacity](https://capacity.com/author/teamcapacity/ "Posts by Team Capacity") \| Sep 6, 2024

![AI Chatbot header image](https://capacity.com/wp-content/uploads/2023/02/2023-AI-Chatbot-Hub-Feature-Image.jpg)

The AI chatbot revolution is upon us. Conversational AI is transforming the enterprise world, providing companies with a more efficient way to interact with customers and employees. This comprehensive guide will introduce AI chatbots, explain their key features and benefits, and explore how they can transform your business. By the end of this guide, you will have a strong understanding of this new technology and its potential to revolutionize the enterprise world.

Let’s first define a chatbot. Chatbots are software programs that interact with humans using written or spoken language via online messaging apps. Chatbots may be rule-based or use artificial intelligence. They often take the place of a live agent.

Rule-driven chatbots are designed for specific tasks, working from standard question-and-answer templates. With customer expectations rising, AI chatbot automation tech is now more critical than ever.

![illustration of capacity offering a user the choice of "yes" or "no" to the question "would you recommend this product to a friend" as well as a response from capacity saying "great, how would you rate your overall experience with us today" and then four stars out of five selected](https://capacity.com/wp-content/uploads/2022/11/RPA_Header-Image.png.webp)

### Get Started with AI

**Capacity’s customized AI Assessments can help:**

- Identify opportunities for using AI
- Prioritize use cases that fit your goals
- Build an action plan for implementation

[Start My Assessment](http://www.aiassessment.com)

## What is an AI chatbot?

AI chatbots are automated agents powered by AI technology designed to have natural, human-like conversations with people. They can be used for various tasks, including customer service, sales and marketing, and employee training. Most chatbots understand natural language processing (NLP) and use speech recognition technologies to process text or voice commands.

Many applications leverage AI-driven conversational technology, which enables the AI to interpret and respond to spoken or written inquiries from customers and employees. Such applications also use machine learning algorithms to continuously improve their accuracy in understanding user input.

![Image explaining the definition of AI Chatbot.](https://capacity.com/wp-content/uploads/2023/02/2023-AI-Chatbot-Hub-Definition-1024x577.jpg)

## How do AI chatbots work?

Trained AI bots can operate independently using [NLP and machine learning](https://capacity.com/automation/helpdesk-chatbots/). NLP combines language rules with context to interpret what is being communicated and enhance natural language understanding. With practice, the best chatbots learn to recognize verbal cues that help them better understand the user’s sentiment.

![Graphic showing how NLP works with AI Chatbots.](https://capacity.com/wp-content/uploads/2023/02/2023-Conversational-AI-NLP-Chat-Bubble-Gif-1.gif)

At a basic level, an AI chatbot using NLP works as follows:

**Step 1:** A human asks a question using slang and acronyms

**Step 2:** AI algorithms are applied to the text of the customer question, picking up on typos or abbreviations used

**Step 3**: The AI program delivers a human-like response to the consumer via text or [SMS](https://capacity.com/livechat/ "SMS").

It is during Step 2 that AI tech and NLP apply. This is where technology identifies the user’s intent and determines specifics about the request (known as entities). Algorithms based on previous data can infer feelings like frustration or anger so that the AI bot can deliver a more targeted response via a realistic conversational experience.

Chatbot platforms create bots to be intuitive. So, with practice, they learn more effective ways to respond. They develop more sensitivity, resulting in more accurate answers and better customer interactions. Chatbots can be trained to triage questions at the start of a session to immediately route the query to the appropriate endpoint, sometimes to a live agent. When the chatbot doesn’t have the answer, automated [helpdesk technology](https://capacity.com/learn/helpdesk/) steps in. Chatbots developed with API also support integrations with other applications.

![Image showing three key features of modern AI chatbots.](https://capacity.com/wp-content/uploads/2023/02/2023-AI-Chatbot-Hub-3-Key-Features-1024x576.jpg)

## 3 Key Features of Modern AI Chatbots

Modern AI chatbots come with a range of features that make them highly effective for business applications.

### 1\. Natural Language Processing

Chatbots use NLP to identify and understand the intent of a user’s questions or commands. AI bots can also easily recognize typos, slang words, and acronyms.

### 2\. Machine Learning Algorithms

Chatbots leverage machine learning algorithms to learn and improve their natural language understanding continuously. Chatbots can recognize user sentiment and personalize responses accordingly.

### 3\. AI-powered Conversational AI

Chatbot applications use AI-driven [conversational AI](https://capacity.com/automation/conversational-ai/) technology to interpret and respond to spoken or written inquiries from customers and employees. Chatbot platforms create bots that are intuitive.

## The Importance of AI Chatbots in Enterprises

AI chatbots are quickly becoming a must-have for companies looking to stay ahead of the competition. These solutions enable businesses to [automate customer service](https://capacity.com/automation/enterprise-automation/) and provide customers with personalized service 24/7. Chatbot applications allow businesses to simplify complex tasks and transactions, reduce costs, improve response times, and enhance customer satisfaction. Bots can also streamline processes, make decisions based on data, and generate insights from customer conversations. Chatbots are quickly becoming essential to any successful business as they allow companies to focus on core tasks. In contrast, AI chatbot applications handle mundane ones with ease.

Chatbot automation is revolutionizing customer service and will be a crucial driver of business success in the future. By utilizing AI, businesses can bridge the gap between customers and employees for a more natural conversational AI experience. AI-powered chatbots are an invaluable asset for any enterprise looking to stay ahead of the curve.

![Image showing the five benefits of AI chatbot technology.](https://capacity.com/wp-content/uploads/2023/02/2023-AI-Chatbot-Hub-5-Benefits-1024x577.jpg)

## 5 Benefits of AI Chatbot Technology

AI bots are revolutionizing customer service and will be a crucial driver of business success in the future. Let’s take a look at some of the top benefits of using AI chatbot tech:

### 1\. Improved Automation

AI can automate mundane, repetitive tasks and allow employees to focus on more complex tasks. AI support applications are capable of handling customer inquiries quickly and accurately and can be used to automate many customer service processes.

### 2\. Cost Reduction

AI can help businesses reduce costs by eliminating the need for live agents. AI can also streamline processes, reducing the human capital needed to manage customer requests or transactions.

### 3\. 24/7 Customer Support

AI enables businesses to provide customers with 24/7 support without hiring additional staff to handle after-hours calls or inquiries. AI support bots also provide customers with personalized, AI-driven responses that can help [improve customer satisfaction](https://capacity.com/how-capacity-uses-capacity-featuring-our-customer-success-team/).

### 4\. Enhanced Personalization

AI can provide customers with a more personalized experience by leveraging AI-powered conversational AI technology to recognize user sentiment and customize responses accordingly. AI chatbot applications can understand the context and provide helpful information in real-time.

### 5\. Actionable Insights

AI can generate insightful data from customer conversations, helping businesses identify areas for improvement and develop better strategies for meeting customer needs. AI enables companies to gain valuable insights into their customers’ needs, preferences, and behaviors and track key performance metrics such as conversion rate or response time.

## Are all AI Chatbots based on AI?

In short, no – Not all chatbots are based on AI. Many chatbot applications are powered by AI technology, but some chatbots utilize rules-based logic to interpret and respond to queries, instead of relying solely on AI.

Rules-based chatbot applications can provide an efficient and consistent customer experience, but may need more flexibility or intelligence than AI-powered chatbot applications. Chatbots that use AI are more powerful and can be used in various applications, including customer service, marketing, e-commerce, and more. Businesses should consider using AI-driven chatbot applications whenever possible to get the most out of their tech stack.

## 4 AI Chatbot Examples

AI bots are used in many industries to automate mundane tasks, improve customer service and generate insights from customer conversations.

![Image explaining five AI chatbot examples.](https://capacity.com/wp-content/uploads/2023/02/2023-AI-Chatbot-Hub-4-Examples-1024x577.jpg)

### 1\. Mortgage AI Chatbot

[Mortgage lenders](https://capacity.com/mortgage/) use AI chat technology to streamline complex processes and provide immediate answers. AI-powered chatbots can help automate the application process, save time for lenders, and increase borrower satisfaction with instant access to Fannie, Freddie, USDA, FHA & VA guidelines.

### 2\. Higher Ed AI Chatbot

AI chat applications can [streamline the admissions process](https://capacity.com/education/), provide information about course offerings, and assist students in their everyday academic needs. AI chatbots can also automate administrative tasks such as scheduling or paying tuition.

### 3\. SaaS AI Chatbot

Chatbots can provide customer service support by responding to inquiries or troubleshooting technical issues. AI-powered chat applications can [understand customer queries](https://capacity.com/software/) and provide tailored responses in real-time. AI chatbots can help businesses streamline customer service processes, reduce customer wait times and increase customer satisfaction.

### 4\. AI Chatbots for Insurance

AI chatbots can provide customers with immediate and personalized responses to their [insurance queries](https://capacity.com/insurance-and-reinsurance/). AI chatbot applications can understand customer needs, provide tailored quotes, and help customers compare different policies. AI chatbot applications can also automate administrative tasks such as filing claims or processing payments.

![illustration of capacity offering a user the choice of "yes" or "no" to the question "would you recommend this product to a friend" as well as a response from capacity saying "great, how would you rate your overall experience with us today" and then four stars out of five selected](https://capacity.com/wp-content/uploads/2022/11/RPA_Header-Image.png.webp)

### Get Started with AI

**Capacity’s customized AI Assessments can help:**

- Identify opportunities for using AI
- Prioritize use cases that fit your goals
- Build an action plan for implementation

[Start My Assessment](http://www.aiassessment.com)

## AI Chatbot Best Practices

AI chatbot applications can be an invaluable tool for businesses. Still, several essential best practices should be followed to get the most out of AI chatbot technology.

**1\. Understand Your Customers** – Chatbot applications should be tailored to your customer’s needs and understand their language, preferences, and context. AI-powered chatbots should be designed to provide a conversational experience that aligns with customer expectations.

**2\. Test & Iterate** – Chatbot applications must be tested and iterated regularly to ensure accuracy and effectiveness. AI chatbots can also be integrated with analytics tools to track customer interactions and identify areas for improvement.

**3\. Engage & Educate** – Chatbot applications should be engaging and educational to keep customers engaged and informed about the services offered by your business. AI can provide educational materials, tips, or fun trivia to help customers learn more about your business. AI applications should also be designed to ensure customer privacy and data security.

By leveraging AI-driven chatbot applications, businesses can reduce costs, increase efficiency and deliver a better customer experience. Such chatbots can understand customer needs, provide tailored responses, and automate mundane tasks – all while increasing customer satisfaction with faster response times.

![Image explaining AI chatbot best practices.](https://capacity.com/wp-content/uploads/2023/02/2023-AI-Chatbot-Hub-Best-Practices-1024x576.jpg)

## How AI Chatbots Improve Customer Experiences

Chatbots collect customer data – They know a customer’s peak buying times, shopping history, and preferences, like their favorite color. Unlike other tech tools, such as mobile apps, AI bots can apply this detailed information to anticipate customer questions, improve customer support, provide personalized experiences, and enhance brand messaging.

Insights gained from big data are a competitive advantage. Chatbots can help with those insights by making data available to other applications. As AI bots grow in intelligence, they can acquire critical customer information for more accurate insights. AI chatbots incorporate the latest technology in machine learning, artificial intelligence, and natural language processing to deliver a cost-effective solution that improves customer interaction. With these [integrations](https://capacity.com/apps/), chatbots enhance customer engagement, aid market research initiatives, and generate more promising leads.

## What is the Best AI Chatbot?

![Image showing the top ten AI chatbot companies.](https://capacity.com/wp-content/uploads/2023/02/2023-AI-Chatbot-Hub-Top-10-Bots-1024x576.jpg)

### 1\. Capacity

[Capacity](https://capacity.com/instant-activation/) is the AI chatbot with the most advanced technology. With built-in natural language processing, deep learning capabilities, and sophisticated AI algorithms, Capacity can understand customer needs and provide accurate responses quickly and effectively. Capacity also offers seamless integration with existing systems, making AI adoption easy and convenient.

### 2\. IBM Watson

AI-driven platform that combines natural language processing and machine learning to power chatbots for customer service, health care, finance, retail, and more. Unfortunately, chatbots powered by IBM Watson can only sometimes understand customer intent correctly, leading to incorrect responses or failure to provide the desired results.

### 3\. Boost.AI

Boost.AI is a chatbot platform with a wide range of AI capabilities, such as natural language understanding, intent recognition, and conversation management. While Boost.AI does have a wide range of AI capabilities, its AI is less powerful and advanced than some other solutions.

### 4\. Google Dialogflow

AI-powered platform that enables developers to create chatbots for various applications such as customer service, marketing, and e-commerce. Google Dialogflow chatbots can be challenging to set up and configure, requiring significant technical knowledge.

### 5\. Cleverbot

AI-driven chatbot technology that learns from conversations it has with people to respond more accurately to future inquiries. The AI behind Cleverbot is less advanced than other chatbot platforms and can be prone to providing inaccurate or inadequate responses.

### 6\. Intercom

Intercom is a chatbot platform that enables businesses to create bots for customer service and marketing purposes. Intercom chatbots may only sometimes provide accurate responses as their AI technology is still developing, and it may take some time before their chatbots are fully optimized for customer service.

### 7\. AI Engineer

AI-driven platform that enables developers to create chatbots for customer service, e-commerce, banking, and more. AI Engineer chatbots offer a limited range of AI capabilities and may need to be more limited in understanding customer intent correctly.

### 8\. Zendesk

Zendesk is an AI-powered customer service platform that enables businesses to create AI chatbots for customer engagement. Chatbots powered by Zendesk may need help understanding complex customer requests, and some AI chatbot features can be challenging to set up.

### 9\. AI Life

This is an AI-driven platform for creating chatbots that can be used to answer customer questions quickly and accurately. AI Life bots may need to be improved their ability to understand customer intent, and they may also need help with complex customer requests.

## Want To Try AI Chatbot Technology For Free?

Capacity is an AI-powered [support automation](https://capacity.com/ai-helpdesk/ "support automation") platform that connects your entire tech stack to answer questions, automate repetitive support tasks, and build solutions to any business challenge.

![Image showing a statistic on AI freeing up support agents.](https://capacity.com/wp-content/uploads/2023/02/2023-AI-Chatbot-74-Percent-Stat-1024x576.jpg)

Teams need to be more relaxed with questions and repetitive tasks. Capacity provides everything you need to automate support with AI chatbot tech in one powerful platform. Capacity’s low-code platform, accessible through conversational AI, enables graceful human handoffs and intuitive task management via a powerful workflow automation suite, robust [developer](https://capacity.com/developer-platform/ "developer") platform, and flexible database that can be deployed anywhere.

[In a recent survey,](https://www.prnewswire.com/news-releases/mit-global-survey-90-of-companies-deploy-artificial-intelligence-in-the-customer-journey-300749927.html) 74% of people said AI is instrumental in freeing up agents to improve the overall customer experience.

![illustration of capacity offering a user the choice of "yes" or "no" to the question "would you recommend this product to a friend" as well as a response from capacity saying "great, how would you rate your overall experience with us today" and then four stars out of five selected](https://capacity.com/wp-content/uploads/2022/11/RPA_Header-Image.png.webp)

### Get Started with AI

**Capacity’s customized AI Assessments can help:**

- Identify opportunities for using AI
- Prioritize use cases that fit your goals
- Build an action plan for implementation

[Start My Assessment](http://www.aiassessment.com)

[![Practical AI: The Capacity for Good, Episode 10](https://capacity.com/wp-content/uploads/2023/12/Featured-Image-1200x630-1-1.png)](https://capacity.com/resources/practical-ai-the-capacity-for-good-episode-10/)

## [Practical AI: The Capacity for Good, Episode 10](https://capacity.com/resources/practical-ai-the-capacity-for-good-episode-10/)

by [Team Capacity](https://capacity.com/author/teamcapacity/ "Posts by Team Capacity") \| Dec 14, 2023

Listen and Subscribe Here In this episode of Practical AI: The Capacity for Good, David Avrin, a Customer Experience Keynote Speaker and Consultant, joins James Diel to reveal the importance of customer retention and how it impacts a company's revenue. They highlight...

[![Practical AI: The Capacity for Good, Episode 9](https://capacity.com/wp-content/uploads/2023/12/Featured-Image-1200x630-1.png)](https://capacity.com/resources/practical-ai-the-capacity-for-good-episode-9/)

## [Practical AI: The Capacity for Good, Episode 9](https://capacity.com/resources/practical-ai-the-capacity-for-good-episode-9/)

by [Team Capacity](https://capacity.com/author/teamcapacity/ "Posts by Team Capacity") \| Dec 14, 2023

Listen and Subscribe Here In this episode of Practical AI: The Capacity for Good, Adrian Swinscoe, an Aspirant Punk at Punk CX, joins James Diel to share his insights on how you can tap into your inner punk spirit to revolutionize your approach to customer experience,...

[![Practical AI: The Capacity for Good, Episode 8](https://capacity.com/wp-content/uploads/2023/10/Capacity-for-Good-Ep-8-Featured-Image-1200x630-1.png)](https://capacity.com/resources/practical-ai-the-capacity-for-good-episode-8/)

## [Practical AI: The Capacity for Good, Episode 8](https://capacity.com/resources/practical-ai-the-capacity-for-good-episode-8/)

by [Team Capacity](https://capacity.com/author/teamcapacity/ "Posts by Team Capacity") \| Oct 11, 2023

Listen and Subscribe Here In this episode of Practical AI: The Capacity for Good, David Karandish, Founder and CEO of Capacity, joins James Diel to unveil how AI and automation revolutionize customer service, balancing customer experience and profitability in AI...

### Looking to maximize your team’s capacity?

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About Capacity

Capacity was founded in 2017 by David Karandish and Chris Sims, and is part of the [Equity.com](https://www.equity.com/) incubator. Proudly headquartered in St. Louis.

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