What is a Chatbot and How Do They Work?

Chatbots have come a long way since their inception in the ‘60s. They’ve evolved from simple text-based programs into sophisticated AI-driven conversational agents. 

The first chatbot, ELIZA, was created in 1966 by Joseph Weizenbaum. It could simulate a basic conversation by matching the user's input with a pre-set set of responses. Fast forward to today, and chatbots can handle complex interactions across various platforms because they’re powered by advanced technologies like natural language processing (NLP) and machine learning (ML). 

But what exactly is a chatbot, and how do they work?

What is a Chatbot?

A chatbot is a piece of software that can simulate human conversation through text or voice inputs. Chatbots are integrated into websites, mobile apps, social media platforms, and even standalone devices like smart speakers. They can answer questions, provide information, assist with transactions, and perform a range of manual tasks, making them invaluable tools in customer service, marketing, and many other fields.

Chatbots generally come in two main forms: Rule-based and AI-driven (we’ll cover these in more detail, and other types of chatbots, later on): 

• Rule-based chatbots have a fixed set of rules and can only respond to specific commands. 

• AI-driven chatbots leverage AI to understand and respond to more complex queries, often learning and improving over time.

How Do Chatbots Work?

Chatbots work by processing a user's text or voice inputs and delivering relevant responses. 

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The basic working mechanism of a chatbot can be broken down into the following key steps:

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Step 1. The chatbot processes the user's input

The chatbot processes the user's voice or text input and, using Natural Language Understanding (NLU), analyzes it, picking out key elements—such as names, dates, or specific keywords—to understand the context or intent behind it.  

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Step 2. The chatbot generates a response ‍

Rule-based chatbots then match the user's input to a predefined set of responses and AI-driven chatbots use ML models to generate responses, based on context and past interactions. Really advanced chatbots can understand context and maintain that understanding throughout the conversation, giving more natural and human-like responses. 

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Step 3. The chatbot delivers an output

The chatbot then delivers its response or performs an appropriate action—like booking a ticket or placing an order—in text or, if it’s voice-enabled, voice format, using text-to-speech (TTS) technology.

What Are the Different Types of Chatbots?

We touched on two of the most common types of chatbots earlier: Rule-based and AI-driven chatbots, but as technology has advanced, several other types of chatbots have emerged that can be categorized by their functionality and complexity. 

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Here’s a breakdown of the most common types:

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Rule-Based Chatbots

As established earlier, rule-based chatbots can’t complete complex tasks because they operate on predefined rules and scripts. They are, therefore, limited to specific commands, which makes them suitable for simple, straightforward tasks, like responding to FAQs or helping users with instructions.

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AI-Powered Chatbots

AI-powered chatbots can handle more complex tasks and conversations because they use ML and NLP to understand and respond to user inputs and learn from past interactions. This makes them ideal tools for completing tasks where queries may vary widely, like tracking orders, responding to ad-hoc customer inquiries, and creating marketing content.

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Transactional Chatbots

Transactional chatbots are designed to help users with specific transactions such as booking appointments, purchasing products, or making reservations, and are often integrated with payment systems or CRM platforms.

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Conversational Chatbots

Conversational chatbots are usually AI-driven as they can engage users in a natural, flowing conversation and are commonly used in customer service and support roles.

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Social Media Chatbots

Social media chatbots integrate with social media platforms like Facebook Messenger, WhatsApp, and Instagram and help businesses engage with customers on those platforms. 

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Voice-Activated Chatbots

Voice-activated chatbots operate via voice commands and responses and are often found in smart devices like Amazon’s Alexa and Apple’s Siri.

What Are Chatbots Used For?

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Chatbots have a wide range of applications across various industries. Here are some of the most common uses of chatbots:

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Customer Service Chatbots 

What they do: Customer service chatbots can provide 24/7 customer support, answering common queries and resolving issues without human intervention. When it can't resolve an issue or query, it can transfer the conversation to a human agent.

Marketing and Sales Chatbots

What they do: Marketing and sales chatbots can suggest products based on user's preferences and past transactions and are great for capturing leads as they can engage website visitors and ask qualifying questions.

E-commerce Chatbots

What they do: E-commerce chatbots can use customer preferences and past interactions to offer personalized shopping experiences and also help customers place orders, track shipments, and handle their returns.

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Healthcare Chatbots

What they do: At a basic level, healthcare chatbots help patients schedule appointments and send them appointment reminders, but they can also—based on user input—assess a patient's symptoms and provide preliminary medical advice.

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Educational Chatbots

What they do: Educational chatbots can help students complete their homework, prepare for exams, and learn about new subjects, and they can also suggest courses based on their interests and educational background. 

How Are Chatbots Used in Business?

More and more businesses are adopting chatbots to increase customer engagement, streamline operations, and reduce costs. 

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Here’s why your business might need a chatbot:

Why Your Business Needs a Chatbot

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Chatbots can reduce operational costs: Chatbots can handle manual, repetitive, and time-consuming admin tasks and high volumes of inquiries, meaning you don’t need to employ as many administrative staff or pay for large customer service teams.

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Chatbots can promote scalability: Chatbots can manage thousands of interactions, simultaneously, without the need for additional human resources, meaning you can scale your business without breaking the bank. 

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Chatbots can improve the customer experience: Chatbots can answer common customer queries and respond to them instantly, meaning your customers won’t have to wait for a response (increasing their satisfaction), and they can also gather valuable data about your customer’s preferences and behavior, meaning you can personalize their experiences, and improve your products and services.

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Chatbots can increase sales: Chatbots can suggest complementary products or services, increasing the average order value, and can also follow up with customers who have left items in their shopping cart, encouraging them to complete the purchase.

Chatbot Examples

Here are examples of companies that have successfully implemented chatbots to help them improve their operations, reduce costs, and improve customer satisfaction:

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1. Sephora

• The chatbot’s name: Sephora Virtual Artist
• Its function: The Sephora Virtual Artist helps users try on makeup virtually, offers beauty tips, and provides product recommendations.

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2. H&M

• The chatbot’s name: H&M Chatbot
• Its function: The H&M Chatbot helps customers find outfits based on their preferences and helps them make purchasing decisions.

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3. Domino’s

• The chatbot’s name: Dom
• Its function: Dom allows customers to order pizza, track their food delivery, and also access deals.

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4. Duolingo

• The chatbot’s name: Duolingo Bot
• Its function: The Duolingo Bot helps users practice their language skills by engaging them in conversation-based exercises.

The Best Free Chatbots

For businesses and individuals looking to implement chatbots without having to make a significant investment, several free chatbot platforms are available:

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Conclusion

Chatbots have revolutionized how businesses grow, operate, and interact with customers. From simple rule-based systems to advanced AI-driven conversational agents, chatbots are becoming indispensable in today's digital landscape. 

Whether you're looking to improve your customer service, increase sales, or streamline operations, integrating a chatbot into your business can offer significant benefits. As technology continues to evolve, the capabilities of chatbots will only expand, making them an essential tool for any forward-thinking business.