Chatbots are a big deal. According to Business Insider, 80 percent of organizations are using these automated response tools already or plan to implement them. But it's tough for businesses to gauge their long-term impact. Can they effectively serve customer needs and build relationships? Are chatbot costs lower than human CSR alternatives? What's the real total cost of ownership (TCO) of this up-and-coming technology?

Chat Basics

As noted by Forbes, 2016 was a banner year for this technology, with Facebook dropping $19 billion to buy WhatsApp and then opening its Messenger platform to third-party developers who in turn created bots. Ad Age reports that chat service app Kik saw 300 million users exchange more than 350 messages with bots in just seven months. But while many executives have heard the term "chatbot," it pays to know more than the basics before making an investment.

So what exactly is a chatbot? Put simply, it's an application that leverages artificial intelligence (AI) to simulate human conversation. Think of it as the natural evolution of voice-prompt phone services — instead of limiting users to specific menu commands, bots can theoretically respond to any relevant question without customers feeling like they've been served by a semi-intelligent toaster. This is the value proposition — since chatbots don't need to be paid, don't need breaks or sick time, and can be programmed (or reprogrammed) as necessary, organizations see the potential for huge cost savings.

But are bots ready for the big time?

Talking It Up

Already, a number of organizations are using chatbots to automate both front and back-end customer service. According to Wired, for example, the U.K.'s National Health Service (NHS) is rolling out a chatbot app that will ask patients about their illness symptoms and then suggest either professional medical help or alternative solutions. Ideally, the app will eventually replace the NHS's current nonemergency line and save the service millions.

As noted by CIO, meanwhile, other organizations are using chatbot solutions to help train human customer service professionals. While on the phone with customers, chatbot software tells customer service representatives if they're speaking too quickly or interrupting callers, in turn helping to reduce customer frustration. And frustration is a huge problem — according to the Huffington Post, 61 percent of customers switch to competitors after receiving poor customer service. If chatbots can stem the tide, they could be more than worth the upfront cost.

Chatbot Costs: Now and Forever?

But what does it really cost to build and maintain chatbots? Venture Beat reports that if you're looking to develop one in-house or contract a reputable third-party software firm, setup costs per bot range from $5,000 to $10,000 plus total maintenance fees each month in the low thousands. Going self-service is another option, but since the market is still developing there's little in the way of standardization. Some providers charge per bot and per interaction, but does that mean a single message, a complete conversation or something else altogether? Others charge per user and per automated message, but this presents the dual problem of knowing how many customers will actually use chatbots and what constitutes an automated message, since shouldn't all chatbot interactions be automated?

There's also the quality of service issue. Unlike sci-fi representations of AI as all-knowing and virtually indistinguishable from human interaction, the current market trends more toward clever programming that mimics human interaction only in select cases for short periods of time. As the previously cited Ad Age report notes, things quickly went sideways when Microsoft launched a Twitter chatbot that users tricked into saying offensive things within hours of going live. In less than a day, Microsoft pulled the service. This is the other side of the poor customer service problem — if bots consistently frustrate users, can be easily fooled and can't solve customer issues, chatbot costs may be better spent elsewhere.

Experts are predicting a big uptick for chatbots in the coming years. For many organizations, however, the TCO of total bot conversion could be too steep. It may be better to start small, with a blend of human and automated customer service, and build out bot infrastructure as the market matures.

Tags: innovation cost efficiency Talent artificial intelligence