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What is conversational AI?

What is conversational AI? How does it work? How can businesses use it to not only provide a better customer experience, but also help their contact center or support agents? Learn more below, or get a personal walkthrough of Dialpad Ai Contact Center to see how it works firsthand.


We all know what a chatbot is, but today, chatbots have given way to a more advanced type of virtual assistant: conversational AI.

Through advanced machine learning, ASR (automatic speech recognition), natural language processing (NLP), and natural language understanding (NLU) technology, conversational AI can provide even more accurate answers and resolutions for customers than your typical chatbot—with less human error and more human-sounding dialogue.

This year, millions are forecasted1 to be using voice assistants and it will continue to grow as technology progresses.

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Below, we’ll look at what conversational AI is, how it works, and how businesses are using AI chatbots to provide better customer experiences and empower their employees.

What is conversational artificial intelligence?

Put very simply, conversational AI is a type of artificial intelligence that gives chatbots and virtual assistants the power to converse like humans.

👉 Side note:

While conversational AI platforms can sound very human-like, they are ultimately algorithms, not fully fledged personalities (at this point in time, at least).

That being said, these automations are good at providing the friendly, efficient experience that your customers require. Unlike older chatbots, which are limited to pre-set responses, conversational AIs can give customers more variety and range in their responses.

For example, with a traditional chatbot, a customer would typically have to choose between multiple choice answers to respond to a preset question, like having to choose “Refund,” “Support,” and so on in response to “How can I help you today?” From there, they’d go down the branches of that question tree to (hopefully) resolve their issue. Not the best conversational experience.

Conversational AI, on the other hand, is much better at keeping up with what your customer wants. It will be able to “understand” more complex needs and conversational styles via NLP and deep learning, and keep getting smarter as it learns more about patterns or frequently asked questions from customers.

It can then pivot its responses and optimize as needed to give customers the answers they need without having to involve a human agent, taking customer self service to a new level.

👉 Fun fact:

Dialpad’s omnichannel contact center platform has built-in conversational AI that can even spot gaps in training materials and knowledge databases, and recommend that a company add more information there to handle customer questions!

How does conversational AI work?

Old-school chatbots “talk to” customers using a rigid script and a multiple-choice format to match preset answers to preset questions.

Conversational AI provides more varied responses to a wide range of questions in real time, using AI to figure out what customers need—resulting in a more human-like interaction. This makes customer interactions both more effective and more profitable, because it makes life easier for customer support teams while also improving customer satisfaction.

Dialpad Ai, for example, can even search unstructured sources of data including knowledge bases, FAQ pages, and even past customer conversations asking about the same thing (valuable for repeat callers).

To set up a messaging dialog, just use Dialpad’s no-code drag-and-drop builder to start building a conversation—it can even integrate rich media and video content into your chat interface:

Creating a chatbot flow in dialpad self service blog size v2

Benefits of conversational AI for businesses

Whether via a customer service chatbot or voice assistant, conversational AI provides a few benefits when it comes to customer engagement.

More sales

One of the biggest benefits of conversational AI is that it can be placed on a website’s checkout page to address any gaps in the user experience that may be preventing a shopper from checking out and completing that transaction.

For example, if potential customers are dropping out at checkout because the refund/exchange policy is unclear, or shipping fees are a bit complicated, you could create a conversational flow that answers these questions and encourage more people to complete the transaction.

This is a great example of an AI solution driving an automation that reduces manual work for human agents while also improving a customer’s workflow. (And there are other parts of the customer journey where you could place it too.)

Better customer service, shorter wait times

When the brunt of the repetitive, low-value questions are handled by chatbots, human agents are freed up to handle the conversations that actually need their help. The result: Less overwhelmed agents, more focus, and higher customer satisfaction.

What’s important to note here is to not implement conversational AI or a virtual agent with the intention of getting rid of human agents.

One of the biggest irritations with traditional chatbots is that they completely removed the human touch in favor of self-service automation. This approach to AI application is risky because sometimes, customers really do have complicated questions that require a human conversation.

That’s why a good contact center or conversational AI solution should have a button or option to escalate the conversation to a human agent if needed. (Which Dialpad Ai Contact Center does!)

Reduced operational costs

Finally, conversational AI can help reduce costs in the contact center.

Not only can artificial intelligence lighten the burden on agents, they can also operate 24/7 to act as a fail-safe for customers who may try to contact businesses at different hours of the day.

With conversational AI, you can reduce your operational costs without sacrificing customer experience. In fact, you can often improve it.

Conversational artificial intelligence use cases in different industries

Use case: Utilities

From hydro to electricity and the internet, utilities customers tend to ask very similar questions (setting up pre-payment, paying rent, questions about late payments, etc.)

Because of this, utilities are a great opportunity for social media and digital channels like Facebook Messenger to provide appropriate responses and help manage these customer experiences through AI self-service.

Use case: Finance and accounting

Financial services providers have been relatively slow on the uptake when it comes to incorporating conversational AI due to stringent security requirements, but many major banks today like HSBC and Chase Bank are starting to build conversational and text-to-speech experiences into their mobile apps and web experiences:

Examples of self service options from chase bank

A conversational AI or virtual assistant can significantly reduce contact center volumes and reduce wait times by verifying identities for login, checking for things like balance queries, and reporting lost cards—all through automations that used to require a lot of back-and-forth between the agent and customer.

Use case: Travel and tourism

Travel and tourism is another industry that faces a lot of repetitive questions from clients, and is probably one of the best examples of chatbot use cases. “Why is my plane delayed?” “Can I change my flight?” “I want to book a room for two adults” The list goes on.

Unlike financial services though, airlines have really jumped on the conversational AI bandwagon, and are probably some of the biggest users of artificial intelligence to improve their customer experiences and free up their contact centers’ human agents to handle more complex questions.

Use case: Ecommerce

And finally, back to one of our first examples in this guide—ecommerce businesses probably stand to benefit most from conversational AI tools.

Because their businesses tend to be fully online, being able to provide a good self-service experience is absolutely crucial.

(Just look at how heavily companies like Amazon have invested heavily in AI technology.)

For these businesses, voice calls aren’t the communication channel of choice anymore—conversational AI gives customers the convenience of self-service while still keeping that human element in the customer experience. In the era of online shopping where customers want instant solutions, artificial intelligence has completely transformed how ecommerce runs. Learn more about ecommerce contact center platforms.

2 major challenges with conversational AI

All this being said, conversational AI is still relatively new and there are still some challenges that need to be worked out. Here are two big ones that are top of mind for our own team.

Understanding diverse language types

There are innumerable human languages. Even in English alone, there are countless dialects and accents. Speech recognition and conversation analytics are essential elements of conversational AI, but not all AIs can understand all accents and dialects. (What about speech impediments?)

This is an important obstacle to overcome, especially if conversational AI is to be useful in fields like healthcare, where patients may have speech difficulties or non-typical verbal patterns.


Many large companies that are building AI tools have departments dedicated to ethics in AI, and even though this is a fledgling concept, it’s an important one because the scalability of deep learning algorithms means that AIs will very quickly “learn” and add more and more knowledge to their repertoire. Would there come a point where we can no longer control the AI that we create? Should we try to control an AI? These are all questions when it comes to building ethical AI.

Want to provide a better customer experience with conversational AI?

If you have a customer support or contact center team, and are interested in conversational AI, Dialpad Ai Contact Center not only lets you provide omnichannel customer service, but also create conversational experiences—all from a single app interface.

Telephony, SMS/MMS messaging, live chat, analytics... Agents and supervisors can handle all of these. See how it works!

See how Dialpad Ai Contact Center works

Get a personal walkthrough or, take a self-guided interactive tour of Dialpad's contact center app!

FAQs about conversational AI

What is the difference between a chatbot and conversational AI?

A conversational AI is an advanced kind of chatbot, but not all chatbots are necessarily considered conversational AI tools.

Basically, a chatbot is any computer program that can communicate with humans through text, and sometimes speech. Traditional chatbots work from predefined scripts, which flow from answer to answer like a “choose your own adventure” book, depending on answers given by the client.

Conversational AI, on the other hand, has a lot more flexibility and initiative. A conversational AI uses natural language processing and machine learning to understand a wide variety of human speech patterns, enabling it to understand complex questions and deliver customized responses.

Check out the Gartner paper on how to set up a conversational AI program.

Can you have a conversation with AI?

What problems does conversational AI solve?