Building an AI Chatbot: Types, Tech Stack, and Steps

Article by:
Anna Polovnikova
11 min
Want to tap into the power of AI chatbots but are unsure how to embed one into your product or how to train the bot with relevant data? Let's take a close-up look at which types exist, what tech stack to select, and how to build an AI chatbot from scratch in just 6 steps.

The first industry that AI is going to take over is customer support. No, really, at the current level of AI chatbot development, AI chatbots can handle up to 40% of customer support tasks and save up to 30% of the cost.

So in case you're looking for another cut on your spending, and have been wondering how to build an AI chatbot from scratch, you're in the right place. We'll sort out the questions of what these are and why you need them, and walk step by step through how to make an AI chatbot for your business.

Understanding the Basics of AI Chatbots

Before we address the technology questions, let's figure out what an AI chatbot is, who is already leveraging it, why your business needs one, and how much it may cost you.

What Is an AI Chatbot? 

Just to start with simple words, chatbots are smart programs that use fancy stuff like machine learning, natural language processing (NLP), and some slick AI algorithms to chat with you just like a human would – either by text or voice. These chatbots have been through the digital equivalent of a Rocky montage, trained on massive datasets to be your buddy on messaging apps, websites, and even mobile apps. 

There are different types of these digital wizards, which we'll review later on, but the majority of them are either task-oriented chatbots that handle specific questions or the more chatty ones that try to hold a conversation like your favorite barista. 

The term "chatterbot" was coined way back in 1994 by Michael Mauldin – yeah, chatbots have been around that long! In 2024 they're rocking in customer service, virtual assistance, and digging up information faster than you can say "Google it".

Reasons for Building an AI Chatbot in 2024 

AI has come a long way since the days of simple virtual assistants and basic chatbots and now we are in the era of large language models like ChatGPT. If the elder versions were stuck in the list of pre-defined responses, the chatbots of today grasp the context, churn out human-like text, and hold smooth, relevant conversations. So, why do you need to make an AI chatbot? 

1. New Horizons

Creating an AI chatbot makes sense as these tools learn and evolve with each interaction. Trained on gigantic datasets, they tackle a vast range of topics and queries, responses based on which leave newcomers amazed and give lots of food for thought in terms of AI startup ideas

For businesses and developers, tools like the ChatGPT API bring the power to weave these smart models into their platforms and craft custom AI chatbot functionality and apps that drastically change user experiences and boost efficiency.

2. Exceptional Customer Service

They're on call 24/7, providing non-stop support and instant answers, which is a must if you don't want to miss any opportunity. Data analytics for startups and larger businesses is fundamental. And by crunching data and analyzing user behavior, chatbots dish out personalized responses and recommendations that ramp up user satisfaction. Plus, their multilingual prowess and consistent quality ensure everyone gets top-notch service.

3. Cost Saving and Scalability

AI chatbots are usually cheaper to develop and deploy than hiring and training a human team, and they handle a flood of queries at once. Businesses can mine chatbots for valuable insights into customer preferences and behaviors. This information will let you adjust and steer your startup marketing strategy and boost product development.

Which Companies Are Already Using AI Chatbots?

Big names like Spotify, Aeromexico, and Pizza Hut are rocking AI chatbots to deliver round-the-clock customer support, slash costs, and boost sales through personalized interactions and upselling. These chatbots field routine questions, recommend products and even dish out special promos to nudge purchases. Imagine how it can drive customer happiness and loyalty, which is another point in favor of making an AI chatbot.

How Much Does AI Chatbot Cost in Terms of Development?

The AI chatbot cost differs greatly based on numerous factors, including which kind of AI chatbot you're planning to build, how complex the solution will be, and which technology will be at its foundation. Who will be building the AI bot also influences the final cost (e.g., in-house vs outsourced development, the country the developers are from, their rates, level of expertise, and so on). Giving a few very rough estimates, a simple AI chatbot can cost you around $5000 USD and up, while a complex and intricate solution can go anywhere from $15000 USD or higher.

Types of AI Chatbots

Are chatbots capable of only chatting in this little support window on your website?

Spoiler — no. They offer a variety of capabilities to meet diverse needs across different industries. Before we explain how to create your own AI chatbot let's review some of the most popular types of AI chatbots.

Types of AI Chatbots

Retrieval-Based Chatbots

The simplest chatbot type, which is the classic go-to for FAQs and customer service. They pull predefined responses from a knowledge base to give you (or your customers) the answers you need. We can call them the librarians.

Generative Chatbots

This type uses language processing (NLP) and machine learning chatbot functionality to formulate the responses. They understand your questions and come up with new, contextually relevant answers. Anthropic's Claude and Google's LaMDA are prime examples, perfect for open-ended conversations.

Task-Oriented Chatbots

These are digital personal assistants. Whether it's booking tickets, scheduling appointments, or giving recommendations, they've got it covered.

Conversational AI Assistants

Meet the all-stars like Apple's Siri, Amazon's Alexa, and Google Assistant. These advanced chatbots engage in freeform conversations, understand the context and intent, and help with complex queries across various domains.

Chatbots with Multimodal Interfaces

This kind of bot takes interaction to the next level and combines touch, voice, vision, and augmented reality. Imagine a chatbot in an AR/VR environment guiding you through a virtual store. 

Emotionally Intelligent Chatbots

Such chatbots get the feels. They use emotional AI to detect and respond to human emotions, which makes them great for roles like mental health counseling.

Domain-Specific Chatbots

These are the specialists. Whether it's healthcare, finance, or e-commerce, such AI chatbots are optimized for specific verticals. Medical diagnosis chatbots and banking bots are just a couple of examples of how the industry is going to change soon.

As you can see, the chatbot's field of application is extremely wide. Most likely, you already know how one of them would complement your business and are itching to find out how to make your own AI chatbot. Let's get straight to it!

AI Chatbot Development Tech Stack 

The process of building an AI chatbot requires a top-notch tech stack that includes natural language processing, cloud infrastructure, and AI/ML software. Here's the lowdown on the ideal tech stack for a chatbot that rocks.

Natural Language Processor (NLP)

NLP is the brain of your chatbot that enables it to understand and generate human-like sentences. It handles tokenization, part-of-speech tagging, and lemmatization, setting advanced chatbots apart from the basic ones. Instead of reinventing the wheel, tap into these tried-and-true solutions:

  • Amazon Lex
  • Google DialogFlow
  • IBM Watson Assistant
  • Microsoft Bot Framework

These platforms let you create, configure, and tweak your chatbots with minimal fuss.

Cloud Infrastructure

For deploying, managing, and scaling your NLP engine, machine learning workloads, and chatbot apps, you need a solid infrastructure for simpler cloud infrastructure management down the line. These platforms handle the nitty-gritty of server provisioning and provide scalable computing power as your business grows:

  • AWS
  • Microsoft Azure
  • Google Cloud Resources
  • IBM Cloud

AI/ML SoftwareWith your NLP system and cloud platform in place, it's time to develop the AI/ML software that makes everything tick as you create an AI chatbot. Essential tools and libraries include:

  • PyTorch: open-source machine learning library perfect for NLP applications.
  • TensorFlow: offers tools for training deep learning models.
  • Scikit-learn: great for building machine learning algorithms and data analysis.
  • Pre-trained large language models: save time and money by fine-tuning these for specific use cases.
  • Other machine learning libraries: Langchain and LLamaIndex are excellent for chatbot applications.
  • Vector stores: lets your AI model store long-term memories as vector embeddings.

This tech stack will let you build an AI chatbot that's scalable, efficient, and capable of delivering a smooth user experience. This way, your chatbot stays on the cutting edge and adapts to various business needs and user interactions. 

Now you have the startup tools to cut the statue out of marble. But how is this statue supposed to look to address your specific needs? We'll lay down the best practices in functionality for the chatbots to make sure you include them.

Need a hand with product development?

Upsilon is a reliable tech partner with a big and versatile team that can give you a hand with creating your AI chatbot or app.

Let's talk

Need a hand with product development?

Upsilon is a reliable tech partner with a big and versatile team that can give you a hand with creating your AI chatbot or app.

Let's talk

13 Must-Have AI Chatbot Features

Now it's time to figure out what makes a chatbot not just good, but phenomenal. We're talking about the bells and whistles that turn a simple conversation tool into a powerhouse of customer service and engagement. Let's check out the features to include in your AI chatbot creation plans.

Must-Have AI Chatbot Features

Recognizing Typos
AI chatbots need to be sharp enough to catch and correct typos and grammar slips to keep the conversation smooth. Unlike those old-school bots that get stumped by misspellings, modern AI chatbots must get the gist of your message. So, if you type "where my refunnis" instead of "Where is my refund?", the chatbot must figure it out and give you the right info.

Content Accuracy
Trust is key, and that means delivering accurate, up-to-date information. Aim for an accuracy score of around 70% to keep your chatbot reliable. High accuracy levels make your chatbot a valuable team player.

User Interaction Learning
The more you interact with these chatbots, the smarter they get. They learn from every chat, fine-tuning their responses and spotting trends. This means fewer canned replies and more spot-on answers. Plus, you can use this data to create handy tutorials or fun, gamified content to tackle common questions.

Got a long-winded question? No problem. Advanced AI chatbots can sum up detailed queries, pulling out the main points to respond faster and more effectively. This not only speeds up problem-solving but also frees up human agents to tackle trickier issues.

Every business is unique, and your chatbot should be too. Customizable chatbots can be tailored to use your industry's lingo and address your specific queries. This flexibility ensures your chatbot evolves with your business and is a hack on how to create an AI chatbot that'll last.

Omnichannel Messaging Capabilities
A seamless experience across all your communication channels is a must. Whether it's your website, WhatsApp, or Facebook Messenger, your chatbot should remember past interactions to prevent customers from repeating themselves, to make the whole experience smoother and to reduce customer churn.

Human Takeover
Sometimes, a human touch is necessary. AI chatbots should be able to pass complex issues to human agents seamlessly. This ensures faster service, better data collection, and smooth handovers, and keeps your support team efficient and your customers happy.

Sentiment Analysis
Chatbots with sentiment analysis can gauge customer emotions and tailor their responses accordingly. This makes conversations feel more personal and helps route frustrated customers to human agents for a quick resolution. Simultaneously, it may provide more emotional insights about your audience.

Language Detection
Support your global customer base with multilingual chatbots. These bots can detect and respond in different languages enhancing customer relationships and delivering a more personalized experience.

Chatbot Marketing Capabilities
AI chatbots aren't just for support, they're marketing team players too. They can inform customers about promotions, deals, and personalized suggestions or subtly nudge them towards valuable products and boost conversion rates.

Keep tabs on your chatbot's performance with detailed analytics. Monitor key performance metrics like user count, fallback rate, and interaction rate to optimize your chatbot for better results.

API Flexibility
Connect your chatbot with other business applications like CRM software through APIs. This integration improves workflows and makes your chatbot more effective in handling complex queries.

Data Security
Last but not least, protection. Ensure your chatbot has end-to-end encryption and customer authentication features to guard against threats like malware and DDoS attacks, especially when dealing with sensitive information.

An impressive list of unused opportunities, right? Now you have a grasp of the possibilities you'll obtain if you decide to integrate the chatbot into your business. Next on the list is a step-by-step guide on how to build an AI chatbot.

How to Build an AI Chatbot from Scratch in 6 Steps 

Finally, we came to a comprehensive step-by-step guide on how to build an AI chatbot from scratch. As a bonus, it also contains the best practices, tips, and some actionable recommendations for anyone who steps on the path of building an AI chatbot.

How to Build an AI Chatbot from Scratch

1. Define Your Bot's Role

Before you jump into building an AI chatbot, it's super important to nail down its role. What exactly do you want it to do? Think about the user experience you want to create. Set clear goals, so you can make sure your chatbot hits the mark and solves the right problems.

And don't forget to consider any industry-specific requirements and rules. For instance, if you're working on a healthcare chatbot, you've got to keep HIPAA regulations in mind.

Define your goals, OKRs and KPIs like how accurate the responses are, how satisfied users are, and how often tasks get completed. This will help you measure your bot's success.

Pro Tips:

  • understand user needs (chat with your target audience through surveys, interviews, or focus groups to figure out what they need and where they struggle);
  • set specific objectives (lay down clear, measurable goals for your chatbot, like cutting down customer service response times or boosting user engagement);
  • identify core functions (prioritize features based on what users need and your business goals, decide if your bot will handle customer support, sales, info-sharing, or a mix of these);
  • check regulatory compliance (ensure your chatbot follows all relevant regulations, like GDPR or HIPAA, from the get-go to avoid any legal headaches later).

2. Choose the Appropriate Tech Stack

Popular NLP libraries like NLTK or SpaCy are a great start and don't forget pre-trained models like GPT-3. For ML, TensorFlow and PyTorch are solid choices. If you're not sure how to develop AI chatbot functionality most optimally, check out chatbot frameworks like Rasa, Botpress, or Microsoft Bot Framework to streamline development.

Make sure your chatbot technology stack has enough scalability and can handle the security matter well, especially if you're dealing with sensitive data. And don't forget a robust backend and database tech to manage and store all that chat data efficiently.

Pro Tips:

  • NLP libraries (kick things off with NLTK or SpaCy for basic NLP tasks, and for more advanced stuff, pre-trained models like GPT-3 or BERT are your friends);
  • ML frameworks (TensorFlow and PyTorch are top picks for building custom models, as they come with loads of documentation and a supportive community);
  • chatbot platforms (platforms like Rasa or Botpress come with built-in features for dialogue management, integration, and deployment);
  • scalability and security (choose tech that can grow with your user base and offers solid security features to protect user data).

3. Design the Conversation

Plan out all possible user inputs and responses and create a dialogue tree to visualize the conversation paths. This way, your chatbot can handle various queries without a hitch. Use user journey mapping to understand different scenarios and how users might interact with your bot. 

Implement fallback mechanisms to handle unexpected inputs smoothly. Also, think about incorporating contextual understanding and memory to make interactions feel natural and personal. Tools like conversation design platforms (such as Voiceflow or Botmock) can help streamline the design process and ensure a seamless user experience.

Pro Tips:

  • user-centric design (aim for a natural, intuitive experience, and use plain language, avoiding complex terminology or niche startup jargon);
  • dialogue trees (map out conversation flows with MVP tools like Miro or Lucidchart to visualize every possible path);
  • context handling (implement ways to maintain context across multiple interactions for a more natural feel);
  • fallbacks and error handling (design clear fallback responses for unexpected inputs to guide users back on track).

4. Train Your Own AI Chatbot

With your conversation flow ready, it's time for training AI chatbot functionality. Use your data to fine-tune NLP models and train ML models to ensure your bot gets it right every time. Continuous training and refinement will keep performance sharp. 

Implement a feedback loop so the chatbot learns from user interactions and tweaks responses accordingly. Use diverse datasets to avoid biases and improve generalization across different inputs. Leverage transfer learning techniques to boost understanding and deploy A/B testing to compare different versions and optimize performance.

Pro Tips:

  • diverse training data (use varied data sources to train your bot so it can handle different dialects, slang, and accents);
  • continuous learning (set up mechanisms for your bot to constantly learn from interactions and regularly update training data with real user conversations);
  • bias mitigation (keep an eye out for biased behavior in your models and retrain with diverse data to keep it fair);
  • user feedback (incorporate user feedback into your training data to improve accuracy and relevance).

5. Integrate with the App and Test

Decide where to deploy your chatbot. You have options such as your website, mobile app, or messaging platforms like Facebook Messenger or WhatsApp. Integrate the bot and put it through thorough testing. Test different scenarios and edge cases to spot and fix any issues. 

Use automated testing tools to simulate conversations and catch flaws. Ensure the chatbot integrates smoothly with existing systems like your CRM or ERP for a cohesive user experience. Test for security vulnerabilities, too, and ensure data privacy compliance. 

Pro Tips:

  • comprehensive testing (test across different devices and platforms, you can apply tools like Botium or TestMyBot that can help with automated testing);
  • UAT or user acceptance testing (get real users to test and give feedback on usability and functionality);
  • security testing (perform security audits to find and fix vulnerabilities, ensuring data protection and privacy);
  • performance monitoring (set up monitoring tools to track performance in real-time and ensure it meets standards).

6. Deploy and Refine the Bot

Once your chatbot is live, start collecting user feedback. Monitor interactions, tweak responses, and analyze performance. Continuous learning and refining will keep your chatbot effective. Set up analytics dashboards for simpler data visualization. You can thus track KPIs in real-time and spot areas for improvement. Use insights from user behavior to enhance conversation flows and add new features.

Regularly update the chatbot with new data and retrain models to maintain accuracy. Engage with users through surveys and feedback forms to better understand their needs and expectations. Establish a dedicated team for ongoing maintenance and support to keep the chatbot a valuable tool for users.

Pro Tips:

  • user feedback loop (actively seek feedback from users post-deployment and adjust based on their input);
  • performance metrics (keep an eye on KPIs like response time, accuracy, and user satisfaction);
  • regular updates (schedule regular updates for the bot's software and training data to add new features and improve performance);
  • proactive maintenance (organize a dedicated team for ongoing support and maintenance to handle issues quickly and ensure reliability);
  • engagement strategies (use personalized messages or proactive suggestions to keep users interacting with the bot).

And there you have it! A chatbot that not only works but also makes you feel like you've got a new buddy.

Seeking help with building your product?

Upsilon has an extensive talent pool made up of experts who can help bring your AI ideas to life!

Book a consultation

Seeking help with building your product?

Upsilon has an extensive talent pool made up of experts who can help bring your AI ideas to life!

Book a consultation

Final Thoughts on AI Chatbot Development

As you can see, the process of building chatbots powered by AI is not a walk in the park. On the contrary, a stellar profit just sits there and waits for someone to take it. And many of the businesses take it. Moreover, now you understand how to build an AI chatbot, so what stops you?

If you think it's already time to pursue the chatbot world or you're still in doubt, our team is here to disperse the clouds of uncertainty and walk you through this process step by step. Upsilon provides team augmentation services, and our experts will be glad to assist with the tech side of your product. So feel free to reach out to discuss your needs.

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