Inside the Conversational AI Revolution

Overview

From break-fix to build-trust 

Historically, customer service has been a break-fix model.

You called when something broke. You braced yourself for bad hold music, endless menu trees, and a stranger who didn’t know your name.

It wasn’t about building a relationship, it was about resolution. Efficiency, not empathy. 

And more often than not, it was a disappointing experience.

Today, break-fix is no longer enough. Consumers now expect brands to know them no matter where, when, and who (or what) they engage with. They want every interaction to feel personal and convenient.

Brands can no longer treat interactions as isolated events. Instead, they should see every touchpoint as part of a larger, ongoing relationship with a customer.

Enter AI: The catalyst for change

Customer expectations have never been higher, yet, businesses finally have the technology to meet them. AI bridges the gap between these rising demands and outdated legacy tools. But AI is only as powerful as the data behind it. It becomes more valuable when it can draw on rich, detailed insights about your unique customers and understand them across channels and touchpoints.

That’s why contextual AI — informed by consent, trust, and human oversight — isn’t just the next step in customer experience. It’s the future.

Hold music is out, real help is in

Let’s face it, when most customers reach out to support, they’re already frustrated. Winning them over is an uphill battle. Yet, there’s still room for optimism: 31% of consumers say they feel hopeful heading into a support interaction — hopeful that someone (or something) can actually help. Increasingly, that something is AI.

AI support has evolved dramatically in just a few years. The early generation of chatbots left many customers wanting more, but today’s conversational AI is far more capable, delivering faster, smarter, and more personalized experiences that improve with every interaction.

Still, there’s room to grow. While 90% of organizations believe their customers are satisfied with their conversational AI experiences, only 59% of consumers agree. A signal that expectations are rising as technology advances. 

Closing the gap between expectation and experience

AI is no longer a novelty. It’s the new frontline of customer engagement. But here’s the catch: while technology is evolving quickly, customer expectations are advancing even faster.

Where are businesses falling short? Which interactions still frustrate, confuse, or disappoint? And what separates the companies that truly win trust from those that merely meet a baseline?

This report uncovers the answers and shows how leading businesses are blending AI’s speed and intelligence with human empathy to not only solve problems, but also anticipate them.

It’s time to move from “fix my problem” to “know me, anticipate my needs, and resolve issues before I even reach out.”

Report methodology 

Consumers want it and businesses are building it

The demand for conversational AI is loud and clear. Nearly 87% of organizations say their customers want more self-service options and 83% want more AI-powered customer service solutions. Customers crave faster answers, 24/7 support, and fewer hoops to jump through.

And businesses are racing to deliver. Most have already launched or are in the process of rolling out conversational AI. In customer service, one in three organizations are in final implementation, and another 28% have already fully deployed. The momentum is even stronger in sales, where 59% are in late-stage rollout.

This trend is highest in industries like manufacturing (73%), healthcare (70%), technology (59%), and retail (64%).

It’s clear: AI is no longer experimental – it’s operational. The next challenge isn’t about whether to build, it’s about how to build smartly with flexibility for whatever comes next.

The modular mindset wins

There’s no one-size-fits-all when it comes to AI models. Only 19% of organizations rely on a single model across all use cases — 81% are mixing and matching models to fit specific needs. Why? Because flexibility is the new safeguard.

Most businesses have learned that lock-in kills innovation.

• 70% say they have a fully customizable conversational AI solution (33% built in-house and 37% built with external support).

• 65% say modular AI lets them deploy incrementally without disrupting existing systems.

• 61% use this approach to test AI in specific use cases before expanding.
   

And they’re designing for change. While 59% of organizations expect to replace their current conversational AI solution within a year, a staggering 99% say the same about their overall CAI strategy. That’s not buyer’s remorse — it’s by design. 

AI stacks are becoming intentionally replaceable for good reason. Technology is evolving so quickly that businesses need the flexibility to take advantage of new AI models, channels, and capabilities without ripping out their existing systems. The new winning pattern is modular, multi-model, and measured — designed to modernize incrementally, upgrade rapidly, and adopt emerging technology as it arrives. In the world of AI, agility isn’t a nice-to-have; it’s the architecture of resilience and future-proofing.

The challenge: Balancing ambition with reality 

AI promises efficiency, but it doesn’t come cheap. Eighty-one percent of business leaders say keeping up with rapidly evolving AI models is expensive. Building and maintaining conversational AI requires serious investment across technology and talent:

• Headcount: On average, organizations dedicate 29 specialists to building and implementing CAI experiences. But the work doesn’t end at launch, most teams grow to about 36 people focused on ongoing optimization and maintenance. 

• Vendors: The AI landscape is shifting fast. Vendors change, models evolve, and the cost of getting it wrong is high. To stay agile, many organizations are hedging risk with shorter contracts and modular systems, recognizing that flexibility is the only constant in the space.

• Human intervention: AI isn’t here to replace humans, it’s here to work alongside them. While 83% of business leaders believe conversational AI can replace human agents, 78% of consumers say it’s critical to be able to switch from an AI agent to a human when needed. Customers still want someone who understands their history and can step in seamlessly.
  
  The reality? The two are far more powerful together. AI can handle the routine and repetitive, while humans bring the empathy, judgment, and context that build trust.

Focusing on differentiation, partnering for the rest

Much like any technology, off-the-shelf solutions can result in off-the-shelf experiences. The opportunity — and challenge — lies in creating something that feels truly customized for your end users. Building that kind of experience often means complex builds, longer development timelines, and ongoing maintenance that demands significant internal resources.

That’s why many organizations strategically delegate build and maintenance to vendors while retaining control over what matters most: customer context, sensitive data, and brand experience.

In fact, only 35% of organizations say they handle conversational AI build, development, and integration entirely in-house. The remaining 65% rely on occasional, mixed, or full support from external teams — a trend that holds true for AI maintenance as well.

Partnering with external vendors allows businesses to keep pace with rapid innovation and:

• Overcome internal expertise gaps: Leverage vendor knowledge without building full teams from scratch.

• Accelerate implementation: Tap pre-built solutions and ready-made components for faster deployment.

• Simplify technical integration: Reduce friction when connecting AI to existing systems.

• Streamline upkeep: Offload maintenance demands while keeping strategic oversight.

• Manage budgets more effectively: Balance spend between internal innovation and external efficiency, scaling investment as needs evolve.
   

By blending in-house expertise with vendor orchestration, businesses get the best of both worlds: speed, efficiency, and innovation — empowering teams to design for change, not permanence.

Trust: The non-negotiable foundation

In AI-powered customer engagement, speed, flexibility, and cost matter, but none of it matters without trust. Security, compliance, and data ownership aren’t just technical challenges; they are business imperatives.

In a world where trust drives loyalty, security and data ownership aren’t just checkboxes, they’re a competitive advantage. 

Responsiveness matters, but relationships matter more

AI has already set the bar for responsiveness: 92% of consumers say that AI typically replies in under 30 seconds when they reach out.

But speed alone doesn’t build trust.

Thirty-nine percent of consumers won’t wait at all for an AI agent, whereas 88% will for a human. They’re also open to waiting twice as long to talk to a real person, up to 8.5 minutes vs. just 4.3 for AI.

Yet, fast replies aren’t enough to win over consumers. If the experience feels cold, robotic, or unnatural, customers leave. Speed is still important, but to stand out, businesses must make every interaction feel natural, relevant, and human.

Why customers aren’t sold on AI (yet)

Sure, most customers recognize AI’s potential — 63% say it’s faster and 52% say it’s more convenient to reach — but the majority still don’t turn to it first. Only 46% actively seek support from AI agents.

Why the reluctance? The experience often falls short:

The real problem isn’t technical, it’s experiential. Customers find AI interactions too impersonal and ineffective. In fact, only 39% of consumers describe AI agents as helpful, while 51% say they feel robotic. 

However, while most customers think they can instantly tell when they’re talking to AI — 75% say so via text and 72% via voice — they’re usually wrong. When tested, 90% couldn’t actually tell the difference between a human and AI. Interestingly, older generations were better at spotting AI — 12% of boomers and 14% of Gen X guessed correctly, compared to just 6% of Gen Z and 10% of millennials.

What gives AI away? Consumers say the biggest tells are scripted-sounding responses (42%), robotic language (41%), and generic answers (36%). 

The good news is that the progress is clear. Customers aren’t anti-AI — they just want it to deliver. In fact, 72% of consumers say they’d gladly use an AI agent if it could guarantee a faster resolution than a human.

The takeaway: AI fails because it still feels artificial. Until conversations feel natural, personal, and adaptive and deliver real understanding and resolutions, most will continue seeing AI as a tool, not a trusted channel.

The future is bright for AI — if you keep refining it

The landscape is evolving fast. Customers who interacted with AI just a few months ago are far more satisfied (67%) than those who last used it over three months ago (45%) — a clear sign of how quickly experiences are improving.

Openness to AI also varies significantly by generation. Younger, more digitally savvy consumers are adopting AI more readily: 57% of Gen Z and 53% of millennials have actively sought help from AI agents, compared to 38% of Gen X and 32% of boomers. They also rate their experiences more positively, with Gen Z (65%) and millennials (69%) giving higher ratings than Gen X (53%) and boomers (46%). 

With Gen Z and millennials increasingly satisfied and engaged, their comfort with AI is paving the path for wider adoption and stronger customer trust. Their confidence and positive experiences signal that AI can evolve from a backup option to a trusted first choice. Brands just need to keep iterating quickly, learning from every interaction, and continuously optimizing their AI to earn trust, deliver better outcomes, and position themselves to meet customer expectations today — and tomorrow.

Smarter support, real results

Speed matters, but it’s no longer the competitive edge. Businesses that succeed will design AI to deliver understood interactions — where context, relevance, and empathy matter as much as response time. For your organization, that means:

The future belongs to AI that’s not just fast, but natural and empathetic. 

Chapter 3

The hybrid frontline: Humans and AI, together

The new hybrid frontline

Customers have already sorted AI and humans into distinct roles. Now, it’s time for businesses to do the same.

AI shouldn’t replace human agents, it should complement them:

• AI’s role: AI can triage issues, gather context, handle repeatable tasks, and draft next steps.

• Humans’ role: Human agents bring the emotional intelligence, life context, and decision-making needed to handle complex or sensitive issues.
   

Understanding these roles and building your processes around them is the first step toward building a hybrid frontline that actually works.

What customers trust AI to do — and not do

Consumers have drawn a mental line: AI is perfect for convenience, while humans are preferred for judgment, emotion, and trust.

• Where AI shines: Helping customers with simple, transactional tasks like basic tech support, answering straightforward questions, tracking orders, and checking product details. 
• Where humans excel: Assisting with complex or sensitive issues. In fact, 69% of customers prefer interacting with people over AI because when something goes wrong they trust humans to understand them better (70%). 
   

That doesn’t mean AI has no role in sensitive interactions. In highly regulated or complex environments, AI can still drive efficiency and accuracy by triaging requests, gathering context, scheduling appointments, or preparing information for a human — ensuring that human agents step in with full context and care when needed. Businesses can further shift customer perceptions by practicing strong data privacy standards, increasing transparency around which interactions use AI, and sharing what data is being used and why.

And as AI systems improve and resolution rates rise, consumer confidence will follow. The businesses that refine their AI for empathy, trust, and seamless human collaboration will be the ones empowering customers to do more — and do it with confidence.

What customers actually want

Which tasks are best suited for AI, and which require a human touch? Consumers trust human agents for high-stakes issues where empathy, reassurance, and real understanding matter most. These include: assistance with medical issues (64%), making an insurance claim (59%), handling returns or refunds (48%), and answering billing questions (45%). 

For simple, straightforward tasks, customers are happy to let AI take the lead. They say it’s more efficient than a human agent when it comes to:

• Checking order/shipping status (41%)
• Resetting passwords (38%)
• Sharing product details (35%)
• Answering general questions (32%)
   

Use AI to handle routine, transactional tasks efficiently, and empower human agents to focus on complex, high-stakes interactions. By getting this balance right, businesses can increase adoption, improve resolution rates, and let customers get comfortable doing more with AI over time.

Looking ahead: AI as a stepping stone, not a silver bullet

AI isn’t perfect, but it’s constantly improving. Better access to real-time data, lower latency, richer context, and improved models will soon make self-service more natural. In order to increase your AI maturity even faster, just start small. Layer AI into existing systems and start your journey: test, prove value, expand.

To minimize failure and maximize trust:

The future isn’t faster bots; it’s automation that understands, adapts, and works alongside humans to deliver trusted outcomes. No matter where you are on your CAI maturity journey, your business can start building a hybrid frontline today: leverage AI for speed and efficiency, empower humans for judgment and empathy, and continually iterate to improve resolution, trust, and customer satisfaction. 

Chapter 4

Context-aware interactions across every channel

Context is the new currency

Customer context is the foundation of personalization, yet most businesses still struggle to deliver the seamless, tailored experiences customers expect. While 88% of consumers say they want more personalized experiences, 56% of businesses name meeting those expectations as a top challenge.

The reality falls short. More than half of consumers (54%) say AI agents rarely or never have previous context about them. And when interactions move from AI to a human agent, only 15% of customers feel the human has full context from the AI conversation. This gap doesn’t just slow things down, it also chips away at trust.

Context is sensitive, but manageable. Even if you could pass every detail to AI, customers may be cautious about sharing personal or financial information. In fact, 66% of consumers say they wouldn’t prefer, or feel uneasy, providing an AI agent with all previous context from interactions.

Protecting privacy while powering service

The good news is that AI can handle sensitive information safely when paired with compliance measures. Redaction, encryption, and PCI-compliant workflows let businesses leverage context for efficiency and personalization while protecting customer data. With these safeguards in place, AI can still power automation without putting trust or privacy at risk. 

It’s also not all-or-nothing. Instead of passing along full customer conversation transcripts, businesses can share call and chat summaries and sentiment insights to capture key topics, tone, and intent so agents (human or AI) can quickly get up to speed without exposing sensitive details. This approach builds continuity and trust, giving agents the context they need to better serve an individual.

For example, customers might start a loan application with an AI agent for convenience, but they expect to finish it with a human. They want speed and relevance, but only within boundaries of consent and control.

The payoff is real

While it’s no surprise, perfecting personalization can directly benefit your business. When AI delivers relevant, context-aware experiences across every channel, the benefits are real and measurable. Organizations that invest in conversational AI personalization report:

• Higher customer satisfaction and engagement (45%)
• Increased loyalty and retention (43%)
• Better customer insights (43%)
• Higher revenue (36%)
   

But the value goes beyond a single interaction. Context-aware AI builds trust, continuity, and a seamless experience that keeps customers coming back — no matter where or how they engage with your brand.

Personalization fuels more than a single interaction. It creates trust and continuity that builds relationships. Make it obvious to customers what context is being used, give them control to opt in, and ensure that context follows them securely across channels and handoffs.

The result: AI that doesn’t just respond — it understands. And businesses that deliver this level of personalization set themselves apart in a world where customers expect nothing less than seamless, context-aware interactions everywhere they connect with your brand.

Context isn’t just a technical capability; it’s a competitive advantage

Context transforms disconnected interactions into seamless experiences. Customers don’t reward channel sprawl; they reward brands that remember them, respect their privacy, and make each conversation feel effortless.

The winning move for businesses: 

Because in today’s world, context isn’t just information — it’s trust.

Conclusion 

What customers want next and how leaders will respond

How to win:

Do this and you’ll capture AI’s advantages in speed and efficiency without sacrificing the trust and connection that keep customers loyal.

This isn’t a rip-and-replace mandate — it’s a maturity journey. Start small, prove value through contained use cases, and modernize at your own pace. Partnering with the right platform like Twilio lets you layer AI into existing systems without disruption, scaling as both technology and expectations evolve.

The takeaway? Trust is earned incrementally. Start now, show results, and build from there because customers will reward the brands that get this right, and they’ll remember the ones that got there first.