What is Conversational AI and How Does it Work?

What is Conversational AI and How Does it Work?

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by John Caroline · 10 min read
What is Conversational AI and How Does it Work?
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The following guide will help you get to know what is conversational AI, how it works, what are its real-life use cases, and what the future holds for this innovative technology.

The emergence of technology has grown to an extent where machines not only help to ease the labor of man but also can communicate with humans. This summarizes the whole idea behind the inception of conversational AI. Before this technology came to the limelight, there was the use of predefined rule-based chatbots. This technology has evolved so much that machines can now understand, process, and respond to the general human language.

Notably, conversational AI comes into play in different places in today’s technology:

  • on your favorite website, where a chatbot might answer your questions;
  • in voice assistant devices like Google Home and Amazon’s Alexa;
  • mobile devices are making conversational AI more user-friendly.

As there is a lot more to discover about conversational AI, here is a guide to help you explore this technology, its components, how it works, and lots more.

What Is Conversational AI?

Conversational AI can be simply described as the brainpower that allows machines to engage in conversations with humans by simulating human voices or using other chatting methods in order to automate communication.

From being a Natural Language Processing (NLP) system, this technology has evolved to more sophisticated machine learning models, and dialogue management infrastructures which enable the technology to display its conversational skills with high efficiency.

Notably, conversational AI is most commonly applied in chatbots. These chatbots adopt the use of NLP to process and interpret the input of users such that the bot can interact in a human-like form.

The conversational AI comprises four main components that work together to ensure its human-like functionality. They include machine learning, natural language processing, data mining, and automatic speech recognition.

Machine Learning

This is a  core component of conversational AI that uses advanced algorithms and statistics to find patterns in huge amounts of data and make predictions. It is important to note that machine learning plays a crucial role in the efficiency of conversational AI work because it helps the system to keep learning from the data it collects and get better at understanding and responding to human language. The image recognition technology is a typical example of the products of machine learning. Think of machine learning like when a computer learns to recognize images, such as cats, by looking at their unique features. This technology is used in things like speech recognition, understanding human language, and making self-driving cars work. The great thing about machine learning is that it can tackle complex problems without needing explicit instructions, which makes it useful in many industries.

Data Mining

Conversational AI is built with data mining tools which helps the machine to discover patterns and insights from data inputted by developers to boost the conversational performance of the system. Unlike machine learning, data mining allows conversational AI to identify unknown properties enabling them to further make forecasts based on recent data.

Automatic Speech Recognition (ASR)

ASR, which stands for Automatic Speech Recognition, is like the magic behind voice-based engines in conversational AI. It’s the technology that lets AI understand what you’re saying, even if there’s noise in the background. It turns your spoken words into text to figure out your question and then responds like a human.

The popular voice-to-text dictation tool is a perfect example of a conversational AI that is based on ASR and can hold complex voice-based conversations. This technology often helps to save users from the stress of typing large amounts of text.

Natural Language Processing (NLP)

The basic function of NLP is all about taking messy and unstructured human language and turning it into something computers can understand, so they can give you the right answers.

In essence, Natural Language Processing is a core part of conversational AI that helps to convert unstructured data into formats that are readable by the machine. Notably, the use of NLP involves the following steps:

  • Lexical analysis. This step refers to the breaking down of a text into individual words or phrases, known as tokens.
  • Syntax and semantic analysis. This process ensures that the computer understands the relationship between words and phrases in a sentence to enable further evaluation of the meaning of the text.
  • Sentiment analysis. This step helps the machine to critically analyze the emotional tone of a text to detect whether it is positive, negative, or neutral.
  • Output transformation. This involves the response-making part of the conversation as it helps the machine to produce human-like language based on a given input or context.

How Conversational AI Works

Conversational AI is like a smart computer that talks and understands you like a human. It breaks down what you say, makes sense of it using its brain (natural language processing), finds the right response, and gets smarter as more people use it.

Impressively, conversational AI has emerged to an extent where it can hold friendly conversations leaving a little difference to conventional human-human conversations. This AI can chat like a human, tell jokes, and make conversations feel friendly.

Conversational AI uses Automatic Speech Recognition (ASR) to turn spoken words into text for hands-free talking and dialogue management to keep the conversation on track. These technologies, along with Natural Language Processing and Machine Learning, help to create engaging conversations that boost customer satisfaction and sales.

Conversational AI Types

There are numerous types of conversational AI in the tech space today, such as AI-powered chatbots, Voice bots, and interactive voice assistants, to mention a few.

  • AI-powered chatbots. AI-powered chatbots are virtual helpers that mimic human conversation. They work on social media, websites, and apps, often handling basic tasks and providing information. These chatbots often function as a great way for brands to improve customer support, engagement, and loyalty.
  • Voice bots. This type of conversational AI is often used to automate business-related conversations such as customer care and assistance. They give callers the opportunity to use their voice to explore an interactive voice response (IVR) system.
  • Interactive voice assistants. Interactive voice assistants (IVAs) are smart systems that understand your spoken words using voice recognition and natural language processing. They let you do things hands-free and make it easy to get info and complete tasks. Examples of this are Amazon Alexa, Apple Siri, Google Assistant, and lots more.

What Does It Mean for Businesses?

As mentioned earlier, conversational AI is often used in businesses as it helps to facilitate transactions and reduce labor. Its automated system is leverageable by businesses to provide faster services to customers and eliminate the need to pay for many workers since some of the tasks can be carried out by machines.

As such, conversational AI provides businesses with exclusive benefits some of which are highlighted below:

  • It provides businesses with enhanced customer support services.
  • It reduces high operational costs in businesses.
  • It helps to improve user experience
  • Conversational AI helps businesses to generate valuable customer data for analysis, helping them to make informed decisions.
  • Its extraordinary speed often serves as a way to help businesses increase sales.

Due to the ability to understand the language of customers and respond to them, conversational AI is serving businesses by improving customer acquisition, reducing the cost to serve customers, and enhancing customer experience.

Conversational AI for Consumers

Conversational AI is known for its consistent replication of human conversation, which often leads to increased customer satisfaction rates. While conversational AI offers substantial benefits to enterprises, thereby enhancing their profitability; it also offers lots of use cases to customers, thereby enhancing their customer experience. Among the advantages offered by conversational AI to consumers are accessibility, online customer support, features of IoT devices, benefits in the healthcare field, simplified HR processes, and more.

For example, in the finance sector, customers can call or open a chat in order to request their balances. Chatbots can serve customers on simple requests and direct them to an agent if the issue is not resolved.

Another example is the hospitality industry. A lot of hotels that have included websites to promote their services online are using conversational AI to allow their customers to make bookings and confirmations. This is purely done without the need for customer service assistance.

Conversational AI vs. Chatbots

While chatbots function similarly to conversational AI machines, it is important to note that chatbots are not the same as conversational AI technology. While both technologies have often been used interchangeably, there is a fine line between conversational AI and chatbots.

In essence, they are like close relatives in the world of automated human-computer interactions, but they have distinct characteristics that set them apart.

Conversational AI often serves as the blocks upon which intelligent chatbots can be built. Basically, conversational AI forms the foundational technology for developing chatbots. Moreover, it is important to note that not all chatbots are based on conversational AI technology as chatbots come in various flavors. Many are scripted or rule-based, offering one-off responses and lacking interactivity. These bots are a bit like old-school IVR systems, limited in their capabilities.

In addition to this, conversational AI goes beyond chatbots by integrating advanced features such as omnichannel user interface, context understanding, language processing, intent management, and advanced analytics. It’s the brains behind the chatbot operation.

Challenges of Conversational AI

Conversational AI is a growing trend in business which is still in its early phase. As such, the technology is facing several challenges. One of them is the input of language, whether text or voice. This poses difficulties due to dialects, accents, and emotions that can confuse the AI.

In addition, privacy and security concerns arise as AI collects user data, requiring robust safeguards to build trust. This has made a lot of potential users feel insecure about the safety of their information, thereby limiting the adoption of the technology. Oftentimes, user apprehension about sharing personal information with machines can create bad experiences, especially when chatbots can’t handle complex queries. This highlights the importance of educating users about AI benefits and safety.

Furthermore, AI’s potential to reduce workforce size has raised socio-economic concerns and backlash. This is because it might reduce the rate of employment opportunities, which means no good for the socioeconomic space.


There is no doubt that conversational AI has come to transform the tech space by redefining and enhancing how businesses communicate with their customers.

This innovative technology poses several benefits to businesses and customers alike. For businesses, it means enhanced customer support, cost efficiency, and valuable data insights, ultimately driving profitability and growth. Customers, on the other hand, enjoy more accessible and engaging experiences, with 24/7 assistance and personalized interactions.

Although conversational AI is still in its growing phase, as this innovation continues to evolve and learn from its interactions, its potential tends to become boundless, promising users exclusive benefits with limited risks in the long run.

Some argue that conversational AI will be the next iteration of human-machine interaction that could get rid of the mouse and the keyboard. As technology keeps evolving toward meeting human needs, conversational AI will continue being a major part of human-machine interaction. As a result, the future of conversational AI remains very bright and promising.



What is conversational AI?

Conversational AI can be simply described as a form of technology that allows machines to engage in conversations with humans. 

What does conversational AI include?

Conversation AI is made up of components like machine learning, natural language processing, data mining, and automatic speech recognition.

What is NLP in conversational AI?

NLP stands for Natural Language Processing which helps to convert unstructured data into formats that are easily readable by the machine.

How does conversational AI work?

Conversational AI uses Automatic Speech Recognition (ASR) to turn spoken words into text for hands-free talking and dialogue management to keep the conversation on track. These technologies, along with Natural Language Processing and Machine Learning, help create engaging conversations that boost customer satisfaction and sales.

What is the difference between a chatbot and conversational AI?

Conversational AI often serves as the blocks upon which intelligent chatbots can be built. Basically, conversational AI forms the foundational technology for developing chatbots.

What industries are using conversational AI?

Some of the industries that are using conversational AI include banking, e-commerce, healthcare, hospitality, and many others.

How can conversational AI enhance customer engagement and support?

Conversational AI enhances customer engagement and support by providing 24/7 availability, rapid responses, and personalized interactions for businesses to their customers, in addition to being highly scalable and cost-efficient.