The first task involves understanding the user input.
In order to properly understand a user input in a free text form, a Natural Language Processing Engine can be used.
The classic historic early chatbots are ELIZA (1966) and PARRY (1972). Companies like Nordea Bank, Domino's, Pizza Hut, Disney, and Whole Foods have launched their own chatbots to increase end customer engagement The newer generation of chatbots includes IBM Watson-powered "Rocky", introduced in February 2017 by the New York City-based startup and e-commerce platform Rare Carat to assist novice diamond buyers through the daunting process of purchasing a diamond.
Interface designers have come to appreciate that humans' readiness to interpret computer output as genuinely conversational—even when it is actually based on rather simple pattern-matching—can be exploited for useful purposes. While ELIZA and PARRY were used exclusively to simulate typed conversation, many chatbots now include functional features such as games and web searching abilities. Chatbot competitions focus on the Turing test or more specific goals.
Most people prefer to engage with programs that are human-like, and this gives chatbot-style techniques a potentially useful role in interactive systems that need to elicit information from users, as long as that information is relatively straightforward and falls into predictable categories. In 1984, a book called The Policeman's Beard is Half Constructed was published, allegedly written by the chatbot Racter (though the program as released would not have been capable of doing so). Two such annual contests are the Loebner Prize and The Chatterbox Challenge.
The second task may involve different approaches depending on the type of the response that the chatbot will generate.
The usage of the chatbot can be monitored in order to spot potential flaws or problems.