What is Conversational AI and How Does it Work?

UTC by Steve Muchoki · 8 min read
What is Conversational AI and How Does it Work?
Photo: Depositphotos

Check out our Conversational AI guide to get to know how it works, what are the real-life use cases and what the future holds for this innovative technology.

Conversational AI also known as conversational artificial intelligence, is a set of technologies that work to enable computers to interact with humans by simulating human voices or chatting methods in order to automate communication. Conversational AI is widely applied by businesses to personalize customer’s experience, while simultaneously scaling it up to bring down the cost of operation.

There are a number of points you can find Conversational AI at work in the modern-day technology, one is at your favorite website which may have a chatbot to reply to your direct concerns. Another wide use of conversational AI is in voice assistant devices like google home, and also Alexa from Amazon. In addition, mobile devices are revolutionizing conversational AI to make the user interface more compatible to even computer illiterate people and also physically challenged people.

As a result, most mobile manufacturers have incorporated conversational AI like SIRI from Apple to make direct messaging, calls, and also google searching without the need to direct typing. Conversation AI does not replace human needs at all, instead, it makes the human experience with the technology easier, and in turn, gives humans the space to work on other tasks.

There are many reasons why businesses would like to incorporate conversational AI into their operations. The primary agenda has always been to engage customers at a personal level, mostly at opinions that may seem boring for human responses. Furthermore, there are computer users who mostly prefer messaging for customer service, and according to research by Gartner, whereby, three out of ten customers would give up phone calls for messaging.

With this in mind, it implies the importance of conversational AI to businesses out there, and hence, making it a critical technology trend that will shape the future of business operation in the near future. Organizations are working at improving human customer service by understanding the natural language that human relates to.

A chatbot that understands customers’ needs is entirely more effective than having humans respond to some repetitive queries made by the customers. However, with the dynamism in language over time, it calls for a regular upgrade to catch up with word contractions, and also colloquialisms that humans develop in their communication.


These are terms that have been greatly confused by many who sees them have the same meaning, however, they refer to different things all the same. Even though referring to different things, NLU is a subset of the wider world of NLP. Therefore, a major field in conversational AI that has worked to evolve artificial technology.

Both are natural language systems made to enhance conversational AI by making it more relatable, and flexible to human needs. NLP or rather Natural Language Processing is defined as all the systems that work together in order to handle personalized interactions between humans and machines in a preferred language. It is used to refer to different tools like speech recognition, natural language recognition and also natural language generation.

On the other hand, Natural Language Understanding (NLU) also referred to as natural language interpretation is a set of systems that deal with machine reading comprehension. It is a vital section of conversational AI that assists on unstructured inputs that are governed by poorly defined and also flexible rules and in turn, help convert them to a machine understanding language.

Here is an example that has been widely used to show the importance of natural language to machine ‘I need a flight and hotel in New York from March 10 to 20.’ The entries made might not be computer friendly, however, due to the advancement in AI, computers are able to extract the information, identify it and finally resolve the semantic meaning of the context.

The computer machine parses it in this structure, ‘need: flight {intent}/ need: hotel {intent}/ New York {City}/ March 10 {date}/ March 20 {date}’

This example shows that even though the computer was fed with information that is not direct for it to understand, it has been programmed to decode the info to its language. Through natural language processing and natural language understanding, it was able to ingest the information, break it down to its constituents, understand its meaning and finally respond with the appropriate action. It makes NLP and NLU a very crucial part in the conversational artificial intelligence.

Now, to differentiate the two, NLP is a decade-old field that mainly focuses on how we can program computers to process a large amount of natural language data. Wherein, Natural Language understanding is specific in purpose, whereby it focuses on getting the computer to understand the meaning of a given context. After all, if the computer will not understand the language, how will it act on the information provided?

Despite the tremendous steps made in making the NLP and NLU part of the modern technology trend, there will never be a definite way for computers to understand the human language as good as humans themselves. Therefore, organizations are heavily investing in this field to keep up with the evolving human language.

Conversational AI Use Cases

In today’s’ daily operation, there are several cases where conversational AI can be applied to make the human-machine interaction smooth and cost-effective. Different businesses have evolved to use conversational AI to enhance the communication channels which their customers prefer.

The list of where conversational AI can be applied is endless, putting into perspective that more and more organizations are putting the technology into use with time. However, we have compiled a list of places that conversational AI can be put into good use;

Finance Sector

The finance sector has enjoyed a good time with the conversational AI, whereby, customers can call or open a chat in order to request their balances. Chatbots are also integrated with phones and also online services to serve customers on simple requests by customers, and also route them to an agent if the issue is not resolved.

Hospitality Field

A lot of hotels that have included websites to promote their services online have significantly made use of conversational AI to allow their customers to make bookings and also confirmations. This is purely done without the need for customer service assistance, hence reducing the cost of hiring one. In other places, customers can make payments over the phone after using a conversational chatbot to make their bookings.

Retail Operations

Retail businesses that operate through online sales have crafted the art of making use of conversational AI in their businesses. Taking, for example, Amazon, sellers rely on customers’ feedback to improve on the ratings, whereby, requests for product and service feedback are handled by conversational AI.

Automated Chatbots are put in place to assist customers with getting simple answers regarding a given task. In addition, conversational AI can be applied by customers who need to get updated on the status of their orders.

Healthcare Sector

This another field that has greatly benefited from the development of conversational AI. The use in this sector ranges from the appointment scheduling on patients where reminders are set by phone. Patients can also set up a prescription pickup schedule using an automated conversational artificial intelligence system. Doctors have also made use of the technology by using conversational AI to collect information like symptoms from their patients.

The Future of Conversational AI

Due to the high adoption rate of conversational AI in the daily operation by most businesses, customer perception has tremendously changed for the better. As a result, a lot of companies are moving towards adopting the technology for different reasons. As a result of high computer mastery, the major hurdles in implementing NLP and NLU have been solved.

As the technology keeps evolving towards meeting the human need, conversational AI will continue being a major part of the human-machine interaction. In the past decade, conversational platforms like WhatsApp, and WeChat have taken the market by storm. With their existence, a lot of people have become used to messaging than making direct calls.

As a result, businesses are now venturing on how to reach out to more customers via such conversational AI platforms. This makes conversational AI a critical part of the future technology trend.

Recently, WhatsApp launched their WhatsApp Business API, which has emerged as a major platform that enterprises use to engage with their customers. With as many customers to reach via the platform, businesses will be in a position to reach greater heights at a minimal cost.

Some argue that conversational AI will be the next iteration of human-machine interaction that could get rid of the mouse and also the keyboard. According to one of IBM staff, despite the strength and weaknesses of the current AI systems, the biggest impact will come from figuring out the best way to have humans and machines interact.

All said and done, the future of conversational AI remains very bright and promising, where most businesses will get disrupted and at the same time grow tremendously as a result.