Conversational AI Market

Updated on : April 11, 2024

Conversational AI Market Size and Growth

The Conversational AI Market size is anticipated to grow at a projected CAGR of 22.6% from USD 10.7 billion in 2023 to USD 29.8 billion by 2028. There are several commercial utilizes for artificial intelligence (AI) and machine learning. Moreover, the expansion of business across Asian countries would help to strengthen the dominance in the Conversational AI market and garner healthy financials. Integrating ChatGPT into a conversational AI platform can significantly improve its accuracy, fluency, versatility, and user experience in coming years.

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Conversational AI Market Dynamics

Driver: Rising demand to embrace AI-powered digital experience across government sector

With governments across the world working to enable broad-scaled digital transformation, public sector organizations are increasingly inclining towards the adoption of conversational AI solutions to redefine the citizen experience. One key reason for this trend is that, globally, citizens are increasingly expecting to be able to engage with their governments online without much delay, with the growth of digital-native populations and the proliferation of mobile devices driving the trend. To meet this demand, more government entities and public sector undertakings will get on the conversational AI trend to improve efficiency and human productivity, streamlining the overall process of delivering citizen services digitally. Conversational AI can step in to improve efficiency and human productivity, streamlining the process of delivering citizen services digitally while keeping humans in the loop. According to data released by Yellow.ai, a leading enterprise-grade conversational AI platform provider, the company has served over 2.7 million unique users across the government sector worldwide and this number will continue to grow in 2023 as well.

Restraint: Privacy and security breaches

With ever-changing times, all businesses are inclined towards using conversational chatbots to effectively engage with customers. Conversational AI is dependent on accumulating data to answer user queries, it is also vulnerable to privacy and security breaches. Developing conversational AI apps with high privacy and security standards and monitoring systems will help to build trust among end users, eventually increasing chatbot usage over time. A few of the threats such as employee impersonation, ransomware and malware, phishing, whaling, and bot repurposing which can lead to data theft and modifications, can cause substantial harm to the organization and customers. Moreover, the mechanisms for detecting and resolving such security flaws continually evolve to ensure early identification and resolution. The security vulnerabilities posed by deploying conversational AI solutions are far more varied and unpredictable, hence falling into the threat and vulnerability categories.

Opportunity: Increasing usage of generative models in Conversational AI

Currently, the usage of generative AI coupled with the rising trend of ChatGPT will offer a huge opportunity in the conversational AI market. Generative models can provide developers with capabilities that help address manual, time-consuming tasks. There would be more focus on how it can be used efficiently by enterprises to solve real business problems. For instance, more focused research on how generative models could be used to generate personalized responses or recommendations based on an individual user’s preferences or history. Or how ChatGPT could be used to create a chatbot that can assist customers with questions or issues related to a product or service. There is also likely to be a trend toward the development of hybrid models that combine generative and discriminative techniques. These models could be more efficient and effective at tasks such as image classification, language translation, and natural language processing. There is still much ground to cover for such tools to be used efficiently and accurately for enterprise use cases to solve real business problems. Furthermore, Generative AI for Conversational AI is one of the most exciting and rapidly developing areas of artificial intelligence. As AI continues to evolve, many generative AI companies have come ahead to harness the ability to generate human-like responses in a conversational setting. It has the potential to revolutionize the way we interact with machines, creating more natural and human-like conversations that are tailored to our individual needs and preferences.

Challenge: Apprehensiveness over disclosing personal or sensitive information

Customers can be anxious about revealing personal or sensitive information, particularly when they realize that they are conversing with a machine instead of a human. Since all the customers will not be early adopters, hence it is vital to educate and socialize the target audiences around the benefits and safety of conversational AI and related technologies to create better customer experiences. This can lead to a bad user experience and reduced performance of the AI and negate the positive effects.  Furthermore, at times chatbots are not designed to answer a broad range of user inquiries. Hence it is crucial to provide an alternative channel of communication to tackle these more complex queries, as it’ll be frustrating for the end user if a wrong or incomplete answer is provided. In such scenarios, customers should be given the chance to connect with a human representative of the company.  Lastly, conversational AI can also optimize the workflow in a company, leading to a reduction in the workforce for a particular job function. This can generate socioeconomic activism, which can result in a harmful counterattack to a company.

By business function, HR segment to register at the highest CAGR during the forecast period

The conversational AI market by business function is segmented into HR, ITSM, sales and marketing, finance and accounting, and operations and supply chain. The HR segment is to grow at rapid pace during the forecast period. Conversational AI for HR enables organizations to deploy digital HR assistants, intelligent bot that handles a wide range of queries in real-time, accurately, and cost-effectively. A conversational AI chatbot benefits the HR department in the screening process by getting prospective employees’ information directly from the website.

By channel, mobile apps segment to have largest market size during the forecast period

Conversational AI helps businesses focus on a continuous and context-driven messaging experience with features such as triggered messages, contextual information, in-app campaigns, sales bot, and intelligent message routing. Conversational AI assists as a personal assistant in mobile apps is going to come with improved natural language understanding (NLU) technology with advanced seamless integration with business and consumer data, and the ability to run a network of interconnected algorithms rapidly to deliver hyper-personalized content in a human-centric conversational interface.

North America to account for the largest market size during the forecast period

North America is expected to have the largest market share in the conversational AI market. Furthermore, conversational AI is widely utilized in integration with intelligent virtual agents or chatbots in order to communicate with a complicated system in a rapid and reliable manner. The growing popularity of voice-based search has propelled the growth of the conversational AI market in North America. The presence of various key market players coupled with highest smartphone penetration rate in the region to spur the growth of the regional market over the forecast period.

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Key Market Players

The Conversational AIvendors have implemented various types of organic and inorganic growth strategies, such as new product launches, product upgradations, partnerships and agreements, business expansions, and mergers and acquisitions to strengthen their offerings in the market. The major vendors in the global Conversational AI market include IBM (US), Microsoft (US), Google (US), AWS (US), Artificial Solutions (Sweden), Baidu (China), SAP (Germany), Oracle (US), OpenAI (US), Kore.ai (US), LivePerson (US), Avaamo (US), SoundHound (US), Kasisto (US), MindMeld (US), Solvvy (US), Creative Virtual (UK), Pypestream (US), Saarthi.ai (India), Inbenta (US), Conversica (US), Haptik (India), Gupshup (US), Cognigy (Germany), Yellow.ai (US), AssemblyAI (US), Senseforth.ai (US), Rasa (Germany), Rulai (US), Exceed.ai (US), Clinc (US), and Laiye (China).

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Scope of the Report

This research report categorizes the conversational AI market based on offerings, conversational interface, technology, channel, business function, vertical, and regions.

By Offering:

• Solutions
• Services
  • Training & Consulting
  • System Integration & Implementation
  • Support & Maintenance

By Conversational Interface:

• Chatbots 
• Interactive Voice Routing (IVR)
• Intelligent Virtual Assistants (IVA)

By Business Function:

• Information Technology Service Management (ITSM)
• Human Resource (HR)
• Sales and Marketing
• Operations and Supply Chain
• Finance and Accounting

By Technology:

• ML and Deep Learning
• NLP
• ASR
• Other Technologies

By Channel:

• Emails and Websites
• Mobile Apps
• Telephones
• Messaging Apps

By Vertical:

• Banking, Financial Services and Insurance (BFSI)
• Retail & eCommerce
• Healthcare & Life Sciences
• Travel & Hospitality
• IT & ITES
• Media & Entertainment
• Telecom
• Automobile & Transportation
• Other Verticals

By Region:

• North America
  • US
  • Canada
• Europe
  • UK
  • Germany
  • France
  • Italy
  • Spain
  • Rest of Europe                         
• Asia Pacific
  • China
  • Japan
  • India
  • South Korea
  • ANZ
  • ASEAN
  • Rest of Asia Pacific
• Middle East & Africa
  • UAE
  • Saudi Arabia
  • Israel
  • Egypt
  • South Africa
  • Rest of Middle East & Africa
• Latin America
  • Brazil
  • Mexico
  • Argentina
  • Rest of Latin America

Recent Developments:

• In March 2023, Baidu announced that it would finish internal testing of a ChatGPT-style project called "Ernie Bot" in March. Ernie, short for "Enhanced Representation through Knowledge Integration," is a sizable language model powered by AI that was unveiled in 2019. With Ernie, Baidu intends to improve its in-car voice assistant. The Apollo Smart Cabin product line is also getting ERNIE Bot installed, which will advance smart cars in terms of how people interact with them.
• In February 2023, OpenAI introduced a conversational AI called ChatGPT that can converse with anyone, respond to the follow-up inquiries, and correct unfounded assumptions. It is available as a pilot subscription service. On February 10th, 2023, the company opened up ChatGPT Plus to consumers outside of the US.
• In February 2023, Google launched a new Conversational AI service for testers named Bard. Bard aims to bring together the depth of human knowledge with the strength, wit, and inventiveness of Google’s massive language models. It uses data from the internet to deliver original, excellent answers. The company is initially making it available using LaMDA's lightweight variant. It can be scaled to more people and get more input because this much simpler model uses a lot less computer power.
• In January 2023, Microsoft announced the launch of Azure OpenAI Service. More companies can apply for access to the most cutting-edge AI models available, including GPT-3.5, Codex, and DALLE 2, and build cutting-edge applications owing to the infrastructure and enterprise-grade capabilities of Microsoft Azure. Customers will also soon be able to use ChatGPT through Azure OpenAI Service, a refined version of GPT-3.5 that has been trained and performs inference on Azure AI infrastructure.
• In December 2022, AWS announced its partnership with Stable AI to build and grow its AI models for the creation of picture, language, audio, video, and 3D content. Stable AI accelerates its work on open-source generative AI models by utilizing Amazon SageMaker (AWS's end-to-end machine learning service), as well as AWS's established compute and storage infrastructure. Moreover, Stability AI will work with Amazon to make its open-source tools and models accessible to worldwide startups, academics, and businesses.
• In June 2022, Artificial Solutions announced new additions to Teneo, the most adaptable Conversational AI platform. Teneo has a number of new features that enable enterprise-level businesses to create no-code, low-code, and pro-code capabilities for next-generation conversational customer experiences on a single platform.
• In February 2022, IBM has developed an AI-based virtual assistant called IBM Watson Assistant in collaboration with TD Securities that can answer common questions about the TD Precious Metals online store. Customers can purchase actual gold, silver, and platinum bullion and coins online from the convenience of their home through the TD Precious Metals digital store.

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