How AI is Shaping Customer Engagement

By John Sternfield, Managing Director, Nfluence Partners

There is nothing artificial about the impact Artificial Intelligence (AI) is having on business. AI is being integrated into products and services used in both the enterprise and consumer markets.  To add critical AI expertise, many companies are turning to M&A to improve their products and services, augment their talent and increase their speed to market.

AI in Customer Engagement

AI is becoming pervasive, particularly in the customer engagement space. Customer engagement applications provide customer service and support, including solutions for voice, chat, social, mobile, IT support and case management.  It is our contention that AI will not replace the personal touch of individuals so critical to effective customer service. Instead, AI will augment it, giving people tools to perform their jobs efficiently, as well as opportunity to keep customers happy. AI will succeed because it saves agents time and improves efficiency, thereby saving the parent company money. It also allows costly human assets to be utilized for higher value-added functions that improve the customer experience or generate revenue.

Voice Remains of Critical Importance.  Companies have been actively utilizing AI in the contact center and customer engagement initiatives. One leader we spoke with estimated that AI likely will tackle 80 percent of customer interactions by 2022. One could surmise that the increase of AI in customer engagements would be at the expense of voice interaction but that is not the case. In fact, many insiders say voice will be the No. 1 value proposition and it is our belief that this is precisely because of the increased reliance on AI-assisted technologies.

Chatbots and IVAs Gaining Traction.  Reports from 451 Research indicate chatbots and Intelligent Virtual Agents (IVAs) which leverage AI technologies also are gaining traction in several business verticals, and software and service providers appear to be increasing their investments in these technologies.  As the table below indicates, 77% of organizations either currently use or will deploy chatbots to help manage customer experiences.

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Source: 451 Research, LLC “VoCUL: 2H 2018 Corporate Mobility and Digital Transformation”

Research indicates this trend toward AI will continue and likely increase in the next 12-18 months. According to Gartner, because only 4 percent of enterprises have deployed conversational interfaces, but 38 percent are planning to or actively experimenting with AI, the market is set for serious growth. In the annual “Voice of the Service Provider” survey from 451 Research, 48 percent of respondents—representing select infrastructure-based public cloud providers, hosting companies, MSPs, telecoms and systems integrators—said they were expecting to increase budgets for AI over the next few years.

AI Driving M&A and Investment

The push toward AI has been and will continue driving M&A deals in customer engagement.  This is reflected in the increasing number of AI transactions being consummated.  According to 451 Research, the AI M&A market almost doubled in 2018 from 130 deals in 2017 to 256 in 2018.  Nearly 150 deals have already been concluded year to date in 2019, demonstrating the accuracy of 451 Research’s recent “Tech M&A Outlook” survey that predicted AI would be a top driver of M&A in 2019.  In particular, conversational AI transactions have risen at a greater clip with 28 in 2018, 7 in 2017 and 2 in 2016. Square’s acquisition of Eloquent Labs (conversational AI for FAQs), Salesforce’s pickup of Bonobot (conversational AI designed to extract insights from online customer interactions), and Conversocial’s purchase of Assist (digital customer experience platform) all have roots in customer engagement. Going back to last year, Microsoft’s acquisition of XOXCO also would qualify as a trend-setter in this direction.  Separately, VCs have been and are continuing to make bets in this space with notable investments including Bessemer (Dashbot), IA Ventures (x.ai), Microsoft’s M12 (Unbabel), CRV (Drift) as a few notables.

Tip of the Iceberg

We believe this trend toward AI will continue and M&A and investment activity will continue to increase in the next 12-18 months.  Consider this perspective from recent ZK Research on the future of AI in customer service: “AI is needed because the volume of data is too massive and the speed with which it is being generated is too fast for humans to match.” Ultimately AI will be seen not only as a way of replacing agents but also as a tool to make them better at their jobs. This means that AI is as much a cost savings as it is innovation and better customer service.

We work with numerous emerging companies in these segments that are seeing accelerating growth.  Should you or one of your Customer Engagement or AI companies be considering evaluating their growth strategies or strategic alternatives, please feel free to contact any of us for our thoughtful opinions.

John Sternfield
Managing Director
jsternfield@nfluencepartners.com