Chatbots

The Rise of the Conversational User Interface

January, 2016
Mark Beccue Consulting Inc.

Executive Summary

We are drowning in data. Today there is so much data produced, it is impossible to

consume or leverage it to the best of our capabilities. In work, we fail to parlay the
vast amount of data available into increased work efficiency or production. In our
personal lives, we mentally shut down in attempts to process news or social
information, buy things or deal with a plumber.

Part of our data consumption problem is form. The graphical user interface with its
start command and drop-down menus worked well in the PC era, but not so much
anymore. In a mobile-first world, our devices dont have start menus or expansive
screens. Search is not smart enough. We need smarter applications that fully
understand what we are looking for or an action we want to take. The most logical
interface to meet these needs is one that is dialog based. You tell your device what
you want, either by voice or text. If an application is confused, it will ask for
clarification to modify. In this way, which is natural to humans, humans and
computers will work better together. This is the Conversational User Interface
(CUI).

Our internet experience to date has been to pull information we want, but we are on
the cusp of switching to a model where desired information is pushed to us instead.

We are on the cusp of a more efficient life, fueled by useful data. We will work better
and live easier because of smarter applications that understand our intent and can
analyze the data available. We will reach this new world through the growing use of
the conversational user interface and chatbots.

Key to the evolution to CUI are smart, nimble applications called Chatbots. Chatbots,
also known as messaging bots, are computer programs that operate through a chat
interface. They can initiate action and respond to requests. Chatbots have the ability
to act proactively, but remain invisible otherwise.

Chatbots will:
Leverage the most sophisticated computer science deep learning and neural
networks yet we will easily interact and guide them using the Conversational
User Interface (CUI) of text/chat.

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Curate our news, schedule our days, take care of our customer service issues,
find, schedule and pay plumbers.
Replace most stand alone mobile apps, disrupt search, bring true context to
marketing, improve workplace and personal life efficiency, and open the door for
new digital tycoons.

Chatbots are cross-OS apps they live on the web, in iOS and Android. Chatbots can
live in most any application. Some will end up as the engine for stand-alone mobile
apps, but most chatbots will live on and fuel messaging platforms, such as Slack,
HipChat, Facebook Messenger, Kik, and Telegram.

Chatbots are easier to build and maintain than stand alone mobile apps. They do not
require consumer-initiated updates and they are platform-independent, all of which
means businesses can be much more responsive to market changes.

Early chatbot development shops include XOXCO, Imperson and several Indian
mobile personal assistants (blog post http://bit.ly/227UPhv ). A host of other
players will enter to produce chatbots.

The primary challenge to market adoption of chatbots is making them smarter. For
chatbots to reach mass market adoption and maximum usability, developers will
migrate from hard coded dumb applications to scalable smart applications using
forms of AI -- machine learning, deep learning and the use of neural networks. Other
market barriers are reputation, navigation, avoiding invasiveness, fragmentation of
APIs and context challenges.

The most compelling emerging use cases for chatbots are:
Workplace efficiency and communication
Customer support/customer interface/e-commerce
Concierge/personal assistant services
Marketing

Conclusions, Recommendations

The number of stand-alone mobile apps consumers use will continue to shrink and
give rise to apps within apps.

Some apps, primarily messaging apps, will become app platforms. Chatbots living
within these app platforms will become the dominant app form by the end of 2017.

For chatbots to be truly helpful, they must master conversational context, a nuance
that comes naturally to humans but is very limited in computer science. If chatbots
cannot master context in the CUI, market adoption will lag.

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Chatbots will disrupt search function and erode Googles search business.

Advertising is under siege with many experts pointing to better context being the
answer. Chatbots are ideal conduits for contextual, interactive, conversational
marketing.

Chatbots have the potential to improve ecommerce conversion rates. Retailers who
are early adopters of chatbots will gain a competitive first-mover advantage.

Personal assistant chatbots have the opportunity to uncork new businesses as
consumers seek help in more efficiently managing their day to day lives.

Messaging apps are well positioned to become chatbot platforms. Early leaders and
likely survivors are Slack and Facebook Messenger. WeChat will launch an official
Chatbot API and become a chatbot leader.

Kik and Telegram are chatbot pioneers, but MBC believes they will be acquired
before the end of 2017.

Google will help accelerate smart chatbot adoption because of TensorFlow, but will
fail as a chatbot platform without an acquisition of an established messaging app.

Chatbots will become table stakes for messaging app platform survival by 2017.
Pressure on Snapchat, Twitter, LINE, Whatsapp, LinkedIn, Salesforce, Oracle, SAP.

The strongest chatbot use cases are workplace efficiency and customer
service/interface/ecommerce because of market need and the ability to leverage
dumb hard-coded chatbots. Marketing and personal concierge use cases have
strong potential, but require more economies of scale and will have to show ROI
path.

Current Market Landscape

With deference to some chatbot use on Asian messaging apps, the chatbot
movement gained momentum because of a desire by U.S. based developers to
manage work more efficiently. It began in late 2010 when Ryan Tomayko built
Hubot to help manage the hardware and software of GitHub. According to a story
which appeared in WIRED http://bit.ly/1OAHEzW Simply by sending a message to
Hubotmuch as theyd send a message to anyone else from inside the GitHub chat
clientengineers could update the operating systems driving GitHubs servers, delete
data from the databases, or take entire servers offline. But in the years since, Hubot
has evolved into something that supports everybody inside the companynot only
handling a wide range of tasks but providing a conversational context for those tasks.

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And as time goes on, this becomes a central record of (just about) everything that
happens inside the company.

Chatbot adoption gained speed in early 2014 when Slack publicly launched its
platform. Slack is a platform driven exclusively by conversational context. Third
party apps, primarily chatbots, can be seamlessly integrated into the platform to
provide useful and interesting services. Other enterprise platforms such as HipChat
have followed Slacks lead in the enterprise space. Many of the chatbots built for
these platforms are hardcoded programs. Other platforms, particularly Telegram,
Kik and now Facebook Messenger have experimented with introducing chatbots on
their consumer-focused platforms, while some stand alone mobile apps, like
SnipSnaps Scout and the Indian concierges, Niki, Helpchat, Joe Hukum, MagicTiger
and Lookup, are fueled by chatbot/AI engines.

It is also interesting to note that some players the stand alone mobile apps, plus
TeamChat, Kik and HipChat are either exclusively closed loop systems featuring
their own chatbots or slightly open to third party chatbots, while Slack, Telegram
and Facebook Messenger are mainly third party bot platforms.

As we stand here today at the beginning of 2016, market conditions are aligning for
chatbot use to expand, particularly on key enterprise and consumer focused
messaging apps.

Market Drivers

Fully discussed in the executive summary faced with data overload and a shift to
mobile devices as primary connected devices, innovators are looking for ways to
make data work for efficiently for consumers and enterprise. This has given rise to a
smarter user interface (CUI). Overwhelming data has also accelerated
advancements in the field of artificial intelligence (AI) to fuel smart applications.

Overwhelming Data
A key indicator of data overload and the imminent growth of chatbots -- consumers
are reaching their limits for the amount of mobile apps they care to interact with.

According to Nielsen the average number of apps used by U.S. smartphone users per
month has remained low and virtually unchanged over three years, standing at 26.7
apps/user/month in Q4 2014 http://bit.ly/1Nbhod1

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Mark Beccue Consulting believes this number will continue to shrink, dropping into
the low 20s by 2017. Very few businesses will be able to command consumer
smartphone real estate to make an impact with their own, expensive, stand-alone
apps. Businesses will increasingly turn to app platforms which dominate consumer
smartphone usage, namely messaging apps, as their primary channel to reach,
interact and do business with consumers.

Market Challenges
Dumb chatbots to smart chatbots
The use cases for smart, learning chatbots hold massive potential as opposed to
dumb, hard coded chatbots. But it is early days for smart chatbots and developers
are still learning how to deploy AI chatbots that are scalable and work well.
AI struggles with context
The chatbot challenge for AI is semantic coherence the ability to remember
the context of a conversation. This can cause chatbots to misinterpret chat
based commands and frustrate chatbot users.

Bad Reputation
Bots are not new. Many, such as the Twitter bots, have a bad reputation. Bad bots
are deceptive. Good bots are labeled as bots. For chatbots to succeed, they must
overcome some stigmas in the marketplace.

Navigation is not intuitive
Some current chatbot navigation relies on insider knowledge, slash commands and
elements that harken back to computer DOS days. Advances in AI should help
navigation immensely and increase consumer adoption of chatbots.

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Avoiding Invasiveness
It is important for chatbot developers and platforms to keep in mind the balance
between being helpful and invasive. Ben Brown of chatbot shop XOXCO believes
chatbots should be invoked into action most of the time, and not proactively
listening. Finding this balance will be critical for mass market chatbot adoption.

Common or Interoperable APIs?

Chatbots will spread across multiple platforms if platform APIs are standardized or
are only minimally different. Fragmented APIs will slow chatbot growth.

Market Opportunities, Use Cases

Use Case: Workplace efficiency and communication
By far the most developed chatbot use case is workplace efficiency and
communication.

Users of enterprise platforms such as Slack, HipChat and TeamChat are finding them
to be highly efficient means of communication, collaboration and project
management. The reasons for this are partly the nature of a messaging platform in
general, but also that chatbots are automating and streamlining tasks and work,
such as communication, scheduling, meetings, translation, project management,
tracking, budgeting and collaboration. Here are some examples of what chatbots are
doing in the workplace:
Convergely
Convergely is chatbot on both Slack and HipChat. It allows you to schedule
messages, annotate images and create polls. Hubstaff blogger Ash Read
http://blog.hubstaff.com/slack-tricks/ describes how useful Convergely is: It can
be extremely useful for scheduling messages to teammates in different time zones. For
example, messaging a colleague +8 hours behind me could easily get lost if I send it
when theyre asleep, but with Convergely I can schedule it to be sent as they start their
work day. I personally love the polls as well, and use them as a way to gain quick
feedback on anything from title ideas for my latest blog post to location ideas for team
retreats.
Meekan
Meekan https://meekan.com is a chatbot on Slack or HipChat billed as a flexible
time scheduling engine and personal assistant that can also book a flight. The
chatbot lets you request meetings in general terms Lunch next week with Sam
and Jane. Meekan then returns the most relevant times to meet. The chatbot can
improve your schedule by bunching together meetings, minimizing your commute,
designate personal time, or limit the number of daily meetings. It does this either
through your set preferences or by learning your daily choices to make smarter
suggestions. The bot is connected to the worlds flight database. Ask it to find a
flight and it will respond with the cheapest and shortest flights available.

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Roomino
Roomino https://angel.co/roomino is a Slack chatbot in beta which simplifies
personal travel management. The chatbot is a single interface into multiple travel
services, enabling users to find hotels, request an Uber ride, manage QuickBooks
and share their travel activities and information on Slack.
DBot
Collaboration and sharing of public and private data makes IT security teams
nervous, and could cause enterprises to hesitate in using Slack. DBOT
https://dbot.demisto.com is a chatbot designed for securing Slack content for
anyone using Slack. It protects users by monitoring communications in the
background and warning them about malicious and harmful content in real time (in
the Slack interface).

Use Case: Customer support/customer interface/e-commerce

Near term market adoption of chatbots will be driven by the customer
support/customer interface use case. CUI enables consumers to state specifically
their requests/issues, to which chatbots can respond to immediately and in many
instances be able to take concrete actions. On websites, in stand alone mobile apps
and on messaging platforms, companies can deploy rules-based hard coded (non AI)
customer service chatbots which will be more efficient and cost-effective than
human-powered manual chat customer service reps. Example: ABC Airline deploys
chatbots across their website, stand alone mobile app and on Facebook Messenger.
John Brown wants to switch a flight. On the website, he clicks on the Actionbot button
and types in, I want to change my flight, John Brown. The chatbot might ask if hes
John Brown of Canton, Ohio, etc. to clarify, ask questions, like when, where. Actionbot
could complete the entire exchange. Actionbot could live also within ABC Airlines
mobile app and on messaging apps like Facebook Messenger or Slack, enabling John
Brown to take action without leaving an app platform he is used to or working in most
of the time.

Use Case: Concierge/personal assistant services

Concierge/personal assistant services have been one of the most popular attempts
to address the problem of consumer data overload/push web. Ranging from Siri,
Google Now and Cortana to Magic https://getmagicnow.com , GoButler
http://www.gobutler.com, Facebook M and a whole troop of Indian market
startups. All are chat-based interfaces, either voice or text. For most of these
services to succeed over time, they will have to automate. Today some of them use
chatbots as their automation engine. Over the next 1-2 years, nearly all of the
successful concierge services will use chatbots. The challenge here is hard-coded
solutions wont work in most cases. It is hard to scale for broad concierge service,
which means concierge services will be lead the way in the use of AI powered
chatbots.

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Use Case: Marketing and Advertising

As marketers seek to engage consumers both contextually and on a one to one basis,
chatbots could become a primary marketing and advertising tool.

Marketers are already experimenting with chatbots. On Facebook Messenger, you
can chat with Doc Brown of Back To The Future, or Miss Piggy
https://www.facebook.com/MuppetsMissPiggy/ of the Muppets (Caution Miss
Piggy only chats 10 am-12 weekdays, Pacific Time).
Kik bots
Youth-focused Kik launched chatbots in July 2014 within their Promoted Chats.
Promoted Chat bots look for keywords in users messages, which create stock
responses. To promote horror movie Insidious 3, a chatbot was created to represent
the movies heroine Quinn Brenner. The Brenner bot could hold a limited
conversation with a Kik user, telling them things like, Some weird stuff has been
going on. Thanks to the appeal of Promoted Chat, GlobalWebIndex estimated nearly
a third of all Kik users interacted with a brand on the Kik platform in July, 2015.

As of September 2015, 16 million users have chatted with Kiks chatbots, and 500
million messages have been exchanged. To put this volume in perspective, Portio
Research estimated messaging app message volume traffic in 2013 at 10.4 trillion.
So Kiks bot interaction to date would be 1/10th of 1% of 2013s global messaging
app traffic.

While the Kik bots may be seen by fewer people than conventional ads, the
engagement and time spent tends to be higher, said Anthony Green, the business
development lead for Kik, during a panel discussion during New Yorks advertising
week in late September. Green said a recent Dell bot was downloaded 180,000 times
but then sent to other Kik friends 1.5 million times. The download to send ratio was
about 8:1.

Kik does not currently allow 3rd party chatbots, only their own. As chatbots become
smarter and more are powered by AI instead of through stock, hard-coded
responses, they will become more valuable as marketing tools.
Scout
An early chatbot in U.S. e-commerce is Scout http://www.snipsnap.it/scout/ . The
stand alone mobile app from SnipSnap is a savings concierge powered by human
mediated AI. Take a photo of any product in a store to price match deals, coupons
and other discounts. Uses chat interface to converse with users in real time.

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Key Bot Ecosystem Players

Slack
With 2 million users and growing, Slack is the number one chatbot evangelist and is
all in on the concept of creating a platform/environment for third-party chatbots.
Slack is also well on its way to disrupting enterprise fiefdoms of Salesforce, perhaps
Microsoft, Oracle and SAP. Slack is the crucible in which the most innovative
chatbots are being created today, and many use cases will find their proving ground
there. In terms of staying power, the challenges for Slack and its chatbot partners
are 1) The business case for Slack chatbots paid model, ad supported, etc.? and 2)
Ease of use (commands).

HipChat
Atlassians HipChat preceded Slack as a enterprise chat platform but was caught
flatfooted by it as HipChat users and non users alike flocked to Slack. Atlassian is
fighting back, and launched HipChat Connect http://bit.ly/1ZO8N68
, an API for bots as of November 11, 2015. HipChat appears to be straddling the
fence of being a pure 3rd party chatbot platform. While several 3rd party chatbots,
including Meekan and Convergely are now available on HipChat, the company also
promotes it own bots http://botlab.hipch.at such as Alias and Standup. Here is a
current list of HipChats integrations https://www.hipchat.com/integrations.

Only time will tell if there will be enough room in the enterprise space for HipChat
to thrive. At this point in terms of chatbot innovation, it is a non-factor.

Teamchat

Teamchat http://www.teamchat.com/en/ , from Beerud Sheth and Webaroo, has a

different take on enterprise chat platforms and chatbots. Teamchat offers only
Teamchat-built bots for its platform and an SDK to build chatbots in other apps.
Sheth believes manual chat and AI chat do not scale well, and that agent ran chat is
expensive and not scalable. He thinks automated chat with AI using natural
language processing is hard to implement, has limited context, language and poor
grammar. In Teamchats view the solution is a hybrid of chatbots with structured
messages (a type of rules based) solution. With an eye firmly on the Indian market,
Teamchat sees the leading use case for chatbots as commerce. Teamchat approach
bots plus Smart messaging.

Telegram

Telegram stands out as a consumer-focused chatbot pioneer. Telegram has been

experimenting with bots for about a year and adheres to the 3rd party app model.
They introduced their bot platform/API for 3rd party developers in late June of 2015,
and currently list about 250 bots. The platform enables developers to incorporate
custom buttons (users get multiple choice for reply in chat sequence). Some of the
Telegram bots use AI.

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I tested some of Telegrams bots and found them to be unexciting and a bit of a
challenge to use and interact with. First, there is no bot search function or bot store
(as of January 7, 2016). In the FAQs, Telegrams suggests you ask your friends to find
bots, relying on word of mouth. I found a Washington Post bot and all it does is send
you headlines which are not personally configurable. A bot for travel named Taylor
was useless. I asked it for recommendations for hotels near me (Tampa) and it gave
me a list of hotels in Orlando, about 95 miles away. Clearly it is early days and the
user experience will have to improve for Telegram chatbots to succeed on the level
of chatbots on Slack. This is perhaps the difference and the challenge between the
two use cases.

WeChat
Officially, WeChat and Tencent do not allow bots on their platform. There is the
infamous case of Microsofts 100,000 bots getting kicked off of WeChat in June 2014.
There is no developer documentation which discusses bot APIs specifically, but
there are developers who are launching bots on WeChat, at least prior to the
Microsoft incident http://bit.ly/1ISUCbU. WeChat APIs do encourage business
interactions via the chat interface (CUI). Tencent also recently made a significant
investment in North American messaging app Kik, which is aggressively growing a
Kik developed only (not 3rd party) chatbot environment. (Note: Tencent invested
heavily in about 50 companies in 2015 http://bit.ly/1OPAt8R .

WeChat will publicly embrace a chatbot policy and programs within the next year.
They are too advanced as a platform to not do so. Look for significant innovation for
chatbot consumer use cases on WeChat.

Kik
Perhaps more than Telegram, Kik is on the leading edge of experimentation in
chatbots designed for consumer marketing use cases, but as noted earlier, it is
interesting that all of Kiks bots are Kik-developed and the platform is currently not
open to 3rd party developers. Perhaps Kik is interested in managing a consistent and
high level Kik experience. In gaining competency in chatbot development, Kik can
better guide marketers and merchants in a successful experience.

I tested Kik chatbots and found the experiences to be better than my Telegram
experiences. The chatbot for the movie The Forest was an interesting immersive
experience, though I would equate it to a tried and true entertainment mechanism
used in many childrens books, where the reader can pick between limited options
to guide the story. Nothing new there, but it was well done and could engage Kik
users. Kiks tab labeled Promoted Chats is also helpful because users know they
will be dealing with marketing-driven content and not Kik friends.

The next step for Kik will be to harness AI and leverage it to build smarter chatbots.
Look for Kik, perhaps in partnership with investor Tencent (WeChat) to partner
with an independent/open source AI platform to develop their smart chatbots.

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Facebook Messenger
It is only a matter of time before Facebook Messenger explodes with chatbots. M
and Businesses on Messenger are the start of it.

Mike Schroepfer, Facebooks CTO, sees Facebook as eventually being a Super
intelligent helper thats plugged into all the information streams in the world.
Facebook Messengers Virtual Assistant M, is an attempt to bring the virtual
assistant to mass market. M uses both software and real life operators to help with
actions, such as restaurant reservations and shopping. Eventually, M could arrange
dry cleaning pickup, or monitor your air conditioning system.

Earlier this year Facebook launched Businesses on Messenger
https://www.messenger.com/business as a new feature for their business Pages
on the social network. Businesses on Messenger enables business-customer
interaction.

Two launch partnersclothing site Everlane and deals site Zulily are good
examples of what the new feature can do. According to Fortune, Everlane
incorporated Facebooks services in its checkout page to allow consumers to opt to
receive updates after making a purchase. From there, a mobile push notification and
an opportunity to continue the conversationfrom gleaning shipping information
from UPS to modifying an order or purchasing another goodwithin the Messenger
app. (Businesses see a customer service portal powered by Zendesk.)

According to Facebook, 45 million small businesses have Facebook pages, but only
2% of them buy ads.

Facebook has invested heavily into artificial intelligence and will leverage their IP
and platform make Facebook Messenger a powerful ecosystem for smart chatbots.

Indian Personal Assistants

In a recent blog http://bit.ly/227UPhv , I noted the race in India amongst digital
concierge apps and that, as chat platforms, they may eventually eat into market
share for the dominant messenger application in India Whatsapp. I think the
development of AI-fueled chatbots will be advanced by this battle in India. Of the
contenders Joe Hukum, Niki, MagicTiger and Lookup are experimenting with AI and
even NLP Natural Language Processing to drive their functionality.

XOXCO
One of the earliest chatbot developers (Taskbot, PMbot, Lunchbot, Howdy) was
Austin-based XOXCO http://xoxco.com . Led by co-founder Ben Brown, look for
XOXCO to remain a key leader in chatbot growth and innovation. The company is
placing a lot of bets on Slack. It has developed a bot engine for extending Slack bots
and can build custom Slack integrations/bots for you.

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Imperson
Imperson http://www.imperson.com is an advertising agency of the future. Manned
by technologists and marketers, Imperson is a specialist in what they are calling
Conversational Technology optimized for entertainment with deep context and
long term relationship management. Imperson, backed in part by Disney
Accelerator, was behind both the Doc Brown Back To The Future and Miss Piggy
chatbots on Facebook Messenger. The company uses both AI and hard coded
solutions for chatbots today.

Birdly
In December, French app developer Birdly publicly stated and did what more and
more app developers are going to do ditch stand alone apps and begin to develop
solely on messaging platforms using chatbots. You can read in detail their reasoning
for the pivot, here http://bit.ly/1PQQuKD .

Artificial Intelligence, Deep Learning & Neural Networks

The field of AI has accelerated in the last few years. AI programs are smarter,
learning faster, and becoming more affordable and accessible to developers. The
most sophisticated AI is best suited for image recognition, text analysis, time-series
data (like stock price action) and fraud detection. Chatbot developers are beginning
to leverage these capabilities.
First, a quick primer on terms in AI:
Artificial Intelligence:
Umbrella term used to describe the capability of a machine to imitate intelligent
human behavior. In complexity, AI moves from machine learning to deep
learning/neural networks.
Machine Learning:
Explores the study and construction of algorithms that can learn from and make
predictions on data. The program must be taught by engineers to learn to perform
tasks.
Deep Learning:
More sophisticated branch of machine learning in which the algorithms are better at
learning, adapting on their own with less teaching from engineers.
Artificial Neural Networks (ANNs):
Machine learning inspired by biological neural networks (particularly brain), used
to estimate or approximate functions that depend on a large number of inputs and
are generally unknown. The most sophisticated deep learning taps into ANNs.

The most sophisticated initiatives involving algorithms that learn on their own like a
human brain (deep learning using ANNs) were until recently, the purview of players
like Google, Baidu, Facebook and Microsoft who have the computing power/GPUs to

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run them. But in the last year, there has emerged a significant movement to
democratize deep learning neural networks, which means a great deal of third
parties outside of the computing giants can begin to access the computing power to
build smarter apps, like chatbots.

In June 2014, a startup called Skymind http://www.skymind.io launched the first
commercial-grade open source distributed deep learning library written for Java
called Deeplearning4J (DL4J) http://deeplearning4j.org . The initiative means that
deep learning software can be built in Java and can run on top of Hadoop. Oh, and by
the way, DL4J is partially funded by WeChat parent company Tencent.

Within weeks of each other in November-December, 2015 three deep neural
network PAAS services were launched Minds.ai http://minds.ai , Metamind
https://www.metamind.io and Googles TensorFlow https://www.tensorflow.org

Mark Beccue Consulting predicts smart, AI-powered chatbots will be in widespread
enterprise and consumer use by mid-2017.

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