What is a chatbot? A plain-English guide for Australian small businesses

You've seen them. The little chat bubble in the corner of a website that says "G'day! How can I help?" Some answer your question on the spot. Plenty give you four buttons, and none of them is the thing you wanted.

So what is a chatbot, really, and does your small business need one? The dictionary answer won't help you decide. What helps is knowing the kinds, how they work, and what they're good and bad at.

I build AI agents every day, and I build chatbots for Aussie small businesses by hand, so this is the builder's version. If you already know you want one and you're comparing options, the best AI chatbot for small business is the one to read.

What is a chatbot?

A chatbot is a computer program you have a conversation with, by typing or talking, that answers back the way a person would. The name is just "chat" plus "robot".

You've almost certainly used one. ChatGPT is a chatbot. So is the chat window on your bank's website, and the bot that replies to a business's Facebook messages at midnight.

On a small business website, a chatbot has a narrower job: answer that business's customers about that business. Do you ship to Darwin? Which boots are best for a day on concrete? Can someone come out about the blocked drain tomorrow?

People sometimes call it a chat box. The chat box is the window. The chatbot is whatever's answering inside it, which on some websites is a program and on others is a real person typing.

What is a chatbot used for in a small business?

In a small business, a chatbot is used to answer customers when you can't: after hours, while you're with another customer, or when you're on the tools. The everyday jobs are:

• Answering the same questions. Shipping, returns, opening hours, payment options, where to park.
• Helping people choose. Which tent, which size, what goes with what. This is where sales are won.
• Tracking orders. Where the parcel is, who has it, when it's due.
• Booking jobs. Checking the calendar and locking in a time.
• Taking the details. When a question needs a person, it gets the name, the number and what they want, and passes it on.

The job that matters most is different for each business. An online store wants it to sell. A plumber wants it to book. A busy shop wants its inbox back. It's the same idea each time, set up for a different job.

A chatbot isn't for complaints, refunds outside your policy, or anything that needs your judgement. A good one knows that and hands those to you.

What are the types of chatbot?

There are two main types of chatbot: scripted chatbots, which follow buttons and keywords someone wrote out in advance, and AI chatbots, which read what the customer typed and write an answer.

Scripted chatbots, also called rule-based chatbots, are a flowchart with a chat window on it. Someone writes every question the chatbot can handle and every answer it gives. Press "Shipping", get the shipping paragraph. Type anything it wasn't scripted for and you get "Sorry, I didn't understand that" and the menu again. Scripted chatbots are cheap, predictable and never say anything you didn't write. They're also stuck the moment a customer asks something nobody thought of, which is most days.

AI chatbots read the question the way a person would, typos and all, work out what the customer wants, and write a reply. "Bought boots last week, bit tight, can I swap them and keep the socks?" gets a real answer, not three buttons. The catch: an AI chatbot is only as good as the information it answers from.

You'll also hear "conversational AI". That's the industry's name for the technology behind AI chatbots. The chatbot is the thing on the website. Conversational AI is how the good ones understand you.

Is a chatbot AI?

A chatbot isn't always AI. Scripted chatbots have no AI in them at all: they match buttons and keywords to answers someone wrote. AI chatbots run on a large language model, the same kind of AI behind ChatGPT.

Chatbots are older than most people think. The first famous one, ELIZA, was written at MIT in 1966. It played a therapist by turning whatever you typed back into a question. For decades after that, business chatbots were mostly scripted. What changed when ChatGPT came out in late 2022 is that chatbots could finally understand what people meant, not just match the words they used.

You can usually tell which kind of chatbot you're talking to in one question. Ask something slightly off-script. A scripted chatbot shows you the menu again. An AI chatbot has a go at answering.

How does a chatbot work?

An AI chatbot works in three steps: it reads the customer's question, looks up the answer in the business's own information, and writes a reply from what it found. If the answer isn't there, a good AI chatbot says so and passes the chat to a person.

The AI inside a chatbot, the language model, is great at reading and writing. It knows what a steel cap boot is and how a returns policy usually works. What it doesn't know is anything about your business: your range, today's prices, what's in stock, your rule about sale items. All of that has to be given to the chatbot, and kept up to date.

That's the part of a chatbot most people never see. When I build a matey, the AI is the easy bit. Most of the work is getting a business's real products, prices and policies into a shape the chatbot can search, then writing the rules for when it hands over to a person. A scripted chatbot needs every answer written out by hand. An AI chatbot needs every fact it might need, kept current.

Is ChatGPT a chatbot?

Yes, ChatGPT is a chatbot: a general-purpose AI chatbot that knows a bit about almost everything, and nothing in particular about your business.

That's the difference between ChatGPT and the chatbot on a business website. Ask ChatGPT whether your local camping store has a four-person tent under $500, and the best it can do is go and read that store's website, same as you would. It doesn't have the store's stock levels, this week's sale or the store's rules about returning sale items. A chatbot on a business website is the reverse. It knows one business inside out, and it should politely decline to help with your kid's homework.

So can you just plug ChatGPT into your website? Sort of. Plenty of website chatbots run on the same kind of AI. But the AI on its own isn't the chatbot. Without the business's information, rules about what it can say, and a way to hand over to a person, it answers customers with confident guesses.

Is a chatbot an AI agent?

A chatbot isn't always an AI agent. A chatbot talks. An AI agent does things: it can take action on its own, like looking up an order, checking a calendar and booking a job, adding something to a cart or sending an email.

The line between a chatbot and an AI agent is blurring fast. A scripted chatbot is never an agent. A good AI chatbot on a business website often is one, in a small way. When a customer asks where their order is, it doesn't say "check your email". It looks the order up and tells them. When a plumber's customer asks for a time, it checks the calendar and books it. Here's what an AI agent is, with real examples from a small business.

The same idea answers phones too. An AI receptionist is an AI agent that picks up calls instead of chats, and books the job the same way. Here's what an AI receptionist is and how it works, and what an AI receptionist for tradies should do when you're on the tools.

Why do chatbots get things wrong?

Chatbots get things wrong in two ways. A scripted chatbot hits a question nobody wrote an answer for and loops back to its menu. An AI chatbot can do something worse: when the answer isn't in the information it was given, it can fill the gap with a confident guess.

I learnt this one early. One of the first chatbots I built read a website in a few seconds and started chatting. On its first real test it told a homewares shop's customers about an in-store appointment service, a store location and fittings that didn't exist. Nothing in the AI was broken. It just hadn't been told what the shop actually offered, so it filled the gaps with what homewares shops usually offer.

The fix is in how the chatbot is built, not which AI it runs on:

• Answer only from the business's own information. Products from the real catalogue, rules from the real policy pages.
• Say "I don't know" when the answer isn't there.
• Hand over to a person with a summary, instead of guessing.

In Australia this matters for more than embarrassment. What your chatbot tells a customer is your business talking, and Australian Consumer Law bans false or misleading claims about products, prices and customers' rights. If your chatbot promises a refund your policy doesn't offer, that's on you, not the software.

Do you have to tell customers they're talking to a chatbot in Australia?

You should tell customers they're talking to a chatbot, and Australia's privacy regulator says so. The Office of the Australian Information Commissioner's guidance on using AI products says public-facing AI tools like chatbots should be clearly identified as AI, and that privacy policies should explain how a business uses AI.

The Privacy Act itself covers businesses turning over more than $3 million a year, plus some smaller ones, like health service providers and businesses that buy or sell personal information. Even if yours is under the line, being upfront costs nothing. Say it's an AI chatbot in the chat window, say how to reach a person, and add a line to your privacy policy about what the chat collects.

Does a small business need a chatbot?

Not every small business needs a chatbot. If you get a handful of questions a week and you're happy answering them, keep doing it yourself. A chatbot earns its keep when:

• Questions come in after hours, when customers are shopping and you're not.
• The same questions keep coming, asked a hundred different ways.
• There's a lot to choose from, so customers need help picking.
• You're busy doing the actual work: on the tools, in the shop, with a customer.

That's the job a matey does. A matey is an AI chatbot I build by hand for an Aussie small business, from its own products, prices and policies, with clear rules for when it hands over to you. Here's one on a made-up outdoor store, helping a customer put a camping kit together:

Want to see what a good one does with your own customers' questions? Try a matey on the homepage. Or send me your website and I'll build a demo running on your own homepage, from your real products and policies, before you pay a cent.