What is an AI Chatbot? A Comprehensive Guide [2025]

Picture this: A customer lands on your website seeking assistance, and there it is – a chatbot pops up, ready to assist them. Pretty normal, right?

Every business seems to have jumped on the chatbot bandwagon that it’s quickly becoming the norm. But in a sea of mundane chatbots offering scripted responses, how can you truly differentiate your customer service and deliver delightful experiences?The answer lies in AI chatbots.

With businesses constantly looking for new ways to meet customer expectations, AI chatbots are no longer a ‘nice-to-have’, but an essential AI tool in your support tech stack, offering instant assistance, personalized interactions, and substantial cost savings.

What is an AI chatbot?

AI chatbots are software applications that use artificial intelligence to simulate human conversation. They can engage in human-like conversations with customers, interpret the meaning behind their queries, provide personalized responses, and continuously learn from interactions over time.

Benefits of AI chatbots

With AI chatbots, you can provide personalized assistance, boost agent productivity, save costs, and increase customer satisfaction — all at once. Let’s dig a little deeper into the benefits of AI chatbots.

AI chatbots can help you:

1. Improve customer service

Since AI chatbots are available for your customers 24/7, it can increase customer satisfaction by addressing queries and concerns in real-time. In cases where they can’t provide a solution, AI chatbots seamlessly hand off the query to an agent, ensuring continuity of support and timely resolution.

2. Save costs

AI chatbots can drive cost savings by automating routine tasks and managing a significant volume of customer inquiries, reducing the strain on human agents. They also efficiently handle multiple conversations simultaneously, allowing you to scale support operations without having to expand your teams.

3. Enhance customer experience

AI chatbots personalize interactions and tailor recommendations based on user preferences, history, and context. They expedite problem resolution and provide accurate answers by analyzing queries, existing knowledge bases, and vast information repositories.They also ensure consistency by delivering uniform responses across channels, providing a cohesive brand experience for customers irrespective of the channel.

4. Increased efficiency and productivity

AI chatbots automate repetitive tasks like addressing frequently asked questions, creating support tickets, scheduling appointments, etc. They can also automate resolutions L1 and L2 support queries, enabling human agents to focus on more complex and value-added tasks.

5. Data insights and analytics

AI chatbots gather valuable data from customer interactions, such as preferences, sentiment, common pain points, etc,. This arms businesses with key insights to make data-driven decisions and refine their products and services.

How do AI chatbots work

When a customer has a query, they start a conversation by typing in their question on the chatbot interface. AI-powered chatbots analyze the input and interpret the user’s intent. It then searches its database for a relevant answer and generates appropriate responses. This sequence of actions is powered by a combination of technologies that enable them to understand, process, and respond to user queries effectively.
Here’s a breakdown of the key components:

1. Large Language Models (LLMs)

At the core of AI chatbots are Large Language Models, which are advanced neural network architectures trained on vast amounts of data. These models, such as GPT (Generative Pre-trained Transformer), possess the ability to generate human-like text based on the input they receive. LLMs enable AI chatbots to understand the context of user queries and generate contextually relevant responses.

2. Natural Language Processing (NLP)

NLP is a branch of AI that focuses on enabling computers to understand, interpret, and generate human language in a manner that is both meaningful and contextually relevant. AI chatbots leverage NLP to analyze user input, extract key information, and determine the intent behind the query. This allows them to comprehend user requests and formulate appropriate responses.

3. Machine learning

Machine learning algorithms enable AI chatbots to learn from data and improve their performance over time. With continuous exposure to user interactions and feedback, AI chatbots can adapt and refine their responses, becoming more accurate and effective in addressing customer queries.

4. Semantic search

Semantic search is a technique that focuses on understanding the meaning of words within the context of a query rather than relying solely on keyword matching. AI chatbots utilize semantic search algorithms to analyze the semantics of customer queries and retrieve relevant information from large datasets or knowledge bases. This allows them to deliver precise and contextually appropriate responses to inquiries.

5. Sentiment analysis

Sentiment analysis is the process of determining the sentiment or emotion expressed in a piece of text. An AI chatbot can employ sentiment analysis algorithms to analyze customer queries and gauge the sentiment behind them, whether it’s positive, negative, or neutral. This allows chatbots to tailor their responses and interactions accordingly, providing more empathetic and personalized support.

Related article: What goes into building a chatbot and the real-world applications

AI chatbots or rule-based chatbots?

Choosing between AI and rule-based chatbots depends on business needs. Rule-based chatbots offer predictability and controlled customer interactions, while AI chatbots can understand customer context, enabling them to handle complex queries and provide personalized responses.

Both AI chatbots and rule-based chatbots have their pros and cons.

Rule based chatbots, although limited in their capabilities, are predictable. This enables you to strictly control the experience your customers have with your business — whether it is finding an answer to their question or being routed to a customer service agent.

AI chatbots, on the other hand, can interpret human sentiment, and provide more personalized responses compared to rule-based chatbots which follow fixed scripts. These chatbots can handle complex queries and adapt to different scenarios, learning from each interaction. This enables you to provide exceptional customer service and scale down on support costs, without compromising customer satisfaction.

Busting myths about AI chatbots

Amid the stream of online posts praising AI and its benefits, there are also those lobbying against it. In the back-and-forth of the online trail, the truth can sometimes get lost, or at least distorted.

So, let’s debunk some myths surrounding AI chatbots.

Myth 1: AI chatbots are only for websites

Reality: While AI chatbots are commonly deployed on websites, they are versatile tools that can be integrated across various channels, including messaging apps, social media platforms, mobile applications, and even in-app on your product. This allows you to meet customers wherever they are to provide seamless support and engaging experiences across multiple touch points.

Myth 2: AI chatbots will replace humans

Reality: AI chatbots are not intended to replace human support agents, but to act as a co-pilot — to be their ally and partner in providing exceptional support experiences. While chatbots excel at handling routine tasks and inquiries, they lack the problem-solving skills of human agents. Instead of replacing humans, AI chatbots complement human agents by automating repetitive tasks, handling L1 and L2 queries, freeing them to focus on more complex issues and providing higher-value interactions that require human judgment and emotional intelligence.

Myth 3: AI chatbots are complicated to set up

Reality: With advancements in technology, setting up an AI chatbot has become more accessible and straightforward than ever before. Many chatbot platforms offer intuitive interfaces, drag-and-drop functionality, and pre-built templates, allowing businesses to deploy chatbots with minimal technical expertise or coding knowledge. Additionally, chatbot providers often offer comprehensive documentation, tutorials, and customer support to assist businesses in the setup process.

AI-native tools, such as DevRev, that have artificial intelligence built-in (rather than bolted-on), go a step further to provide self-learning GPT chatbots. Forget about having to drag-drop components or build complex decision trees to train chatbots. DevRev’s Turing bot works out of the box to actively crawl, index, and analyze various data sources, such as knowledge base articles. This enables it to continuously learn and provide accurate resolutions to customer inquiries. (Curious to learn more? Jump here!)

Myth 4: Customers don’t like to talk to AI chatbots

Reality: Customers are open to engaging with AI-powered chatbots as long as they can get instant resolutions, value and meaningful experiences. When designed effectively, AI chatbots can offer prompt, personalized assistance, 24/7 availability, and seamless interactions, leading to higher customer satisfaction and loyalty.

Myth 5: AI chatbots are expensive to implement and maintain

Reality: Many chatbot vendors, including DevRev, offer flexible pricing plans, including subscription-based models or pay-as-you-go options, making them accessible to businesses with varying budgets. Additionally, the operational efficiencies and cost savings achieved through AI chatbots, such as reduced resource requirements and improved productivity, can generate significant returns on investment (ROI) over time.

How do AI chatbots help different functions of your business

Sales & marketing:

1. Customer engagement

An AI chatbot can engage with website visitors in real-time, providing personalized recommendations, answering queries they might have about the product, and guide them through the buyer’s journey.

2. Lead generation and qualification

By engaging prospects in personalized conversations and offering product recommendations, AI chatbots can nurture prospects through the buyer’s journey and help digital businesses generate leads that drive conversions.

Support:

1. Handling FAQs

AI chatbots efficiently handle frequently asked questions, freeing up human agents to focus on more complex issues.

2. Troubleshooting

AI-powered chatbots assist customers in troubleshooting technical issues by diagnosing problems, providing step-by-step instructions, and offering relevant resources or solutions.

3. Resolving L1 L2 queries

It is capable of resolving Level 1 and Level 2 support queries by analyzing customer issues, accessing knowledge bases, and offering accurate resolutions or escalating issues to human agents when necessary.

4. Routing inquiries

Chatbots can triage inquiries by asking users a series of questions to determine the nature and urgency of their issue, and then route them to the relevant support team or specialist for prompt resolution.

5. Proactive support

AI chatbots can proactively reach out to customers based on predefined triggers or events, such as subscription renewals or product updates, offering assistance and guidance to prevent potential issues and enhance user experience.

Product development:

1. User feedback collection

AI-powered chatbots gather feedback from users regarding their experiences with the product, feature requests, and pain points, providing valuable insights to product development teams for iterative improvements.

2. Beta testing and user onboarding

Chatbots can assist users through the beta testing and onboarding process, answering questions and collecting feedback to ensure a smooth and seamless experience.

3. Feature adoption

It can educate users about new features, functionalities, and updates, driving feature adoption and usage.

Related article: Using chatbots to automate and scale your support operations

How to select a good AI chatbot software & key features to look out for

Selecting the right AI chatbot software is crucial for seamless customer interactions and maximizing the benefits of AI-driven automation.

Considering the best AI chatbots is essential for your business needs. Focus on features, integration capabilities, and adaptability to ensure the chatbot can evolve with your business and customer requirements.

Here’s what to look for in a good AI chatbot software:

1. AI-Powered

Look for an AI chatbot that’s built using machine learning and natural language processing (NLP), to deliver intelligent and contextually relevant responses to user queries. Ensure that it is equipped with large language models (LLMs) and pre-trained language models like GPT (Generative Pre-trained Transformers) to enable human-like conversations and understanding of user intent.

Adding AI functionalities onto an existing product or system without deeply integrating them into its architecture can lead to disjointed experiences, inefficiencies, and limitations in the capabilities of the AI system.

In contrast, when AI is “built-in,” algorithms and functionalities are deeply ingrained within the foundational components of the product or system. This seamless integration enables AI to continuously interact with other aspects of the product. It actively crawls, indexes, and analyzes various data sources such as documents, knowledge base articles, technical documentation pages, and blog posts to build Language Model Models (LLMs).

2. Omnichannel support

The AI chatbot platform should enable you to provide omnichannel support across various customer channels and touchpoints, including websites, messaging apps, social media platforms, mobile applications, in-app etc,.

3. No-code development

Look for an AI chatbot software that offers no-code or low-code development capabilities, enabling non-technical users to design, build, and deploy chatbots without the need for extensive coding knowledge or IT support. Ensure that the platform provides intuitive pre-built templates and customization options for creating chatbots tailored to your specific business needs.

4. Integration capabilities

Ensure that the chatbot platform offers robust integration capabilities to facilitate data exchange, automate workflows, and access real-time information for more efficient customer interactions.

5. Analytics and reporting

The chatbot platform should provide comprehensive analytics and reporting features, allowing you to track key performance metrics, monitor user interactions, and gain valuable insights into chatbot usage and effectiveness. Ensure that the platform offers customizable dashboards, real-time analytics, and data visualization tools for actionable insights and informed decision-making.

6. Personalization and customization

The chatbot platform should allow you to customize it to align with your brand voice, tone, design, and user preferences. Creating your own chatbot also allows for personalized customer interactions. In addition to the look and feel, the AI chat should also offer features such as personalized recommendations, dynamic content generation, and sentiment-based responses to deliver tailored experiences and enhance user engagement.

7. Security and compliance

Prioritize chatbot software that is enterprise-ready and adheres to industry-standard security protocols and compliance requirements, to safeguard sensitive customer data and ensure regulatory compliance. Ensure that the chatbot platform offers features such as data encryption, access controls, and audit trails to protect against security threats and unauthorized access.

DevRev’s Turing bot: The truly AI, self-learning chatbot

DevRev is an AI-native platform that drives the voice of the customer from the customer-facing front office teams to the back office teams that develop products. By integrating AI agents alongside human intelligence, DevRev can help you automate labor-intensive tasks, offer self-service support without compromising customer experience, and enable your support and product teams to predict and resolve complex customer issues more efficiently.

Here’s how DevRev’s Turing powers the AI chatbot:

1. Deflection

Let’s say a customer raises a ticket. DevRev’s AI automatically analyzes and prioritizes it by pulling in relevant information. It suggests the fastest and the most accurate solutions to resolve the customer query. This is called deflection: the ability of an AI chatbot to automatically provide the first line of support to common customer queries.

Unlike most chatbots, DevRev’s Turning AI does not simply direct the customer to a website or PDF where they have to search for the answer. Instead, it combs through the knowledge base (articles and QAs), generates an answer, and checks with the user if the answer is useful or not. If the user marks the answer as useful, Turing resolves the conversation.

Through deflection, you can automate resolutions for L1 and L2 queries. As the AI chatbot performs this operation repeatedly, it learns and constantly improves the accuracy and relevance of its response with every answer that it generates. This means your team spends less time diagnosing problems and more time delivering solutions that really matter to your customers.

2. Routing

When a customer raises a query that is beyond the scope of what’s available in the knowledge repositories, the AI chatbot promptly and seamlessly escalates the conversation to a human agent. It first attempts to understand the query a little more and create a support ticket for it. Next, Turning AI quickly identifies and assigns the ticket to the human agent best suited to resolve the issue.

3. Summarize

Customer support agents receive a number of different queries everyday, ranging across various topics. So much so that it is easy to get overwhelmed or confused between conversations.

With DevRev’s Turing AI, powered by generative AI, customer support agents can use a simple “/summarize ‘’ command and get the gist of the conversation (with the AI chatbot) or customer issue without losing the context or the finer details. This helps the agent to quickly get started on resolving the problem, drastically reducing the customer wait time and queueing time.

4. Rephrase

While conversing with customers, there is no room for miscommunication in order to ensure a faster resolution time. The responses to a customer, who is already upset or frustrated, must be simple and comprehensive.

DevRev’s Turing AI makes agents’ lives easier by enabling them to ‘Rephrase’ and ‘Change tone’ at a click of a button. This ensures that customers get a clear, cohesive response to their queries as soon as possible.

Say goodbye to chatbot builders:

DevRev’s PLuG widget, powered by Turing AI, can be deployed in minutes and is unrestricted by the limitations of the number of steps in flow builders. Deploying PLuG is as easy as point, click, and deploy. There is zero decision tree management involved in the process.

Related Article: Building a chatbot in 6 easy steps

By harnessing the power of artificial intelligence, natural language processing, and machine learning, AI chatbots offer a myriad of benefits across various departments, including marketing, sales, customer support, and product development. From delivering personalized interactions and streamlining workflows to enhancing scalability and providing actionable insights, AI chatbots empower businesses to deliver exceptional experiences and drive meaningful outcomes. As businesses continue to adapt to the evolving needs of their customers, AI chatbots will undoubtedly play a pivotal role in shaping the future of customer engagement and support.