The bot market for startups: challenges and opportunities


PotBotics bills its PotBot as 'the world's first virtual budtender.'

Credit: PotBotics

Bots are hot. But the market has proven to be difficult for new companies. Here's a look at the challenges and opportunities for startups in the bot market.

Dexter, the bot platform incubated by Betaworks, announced last week that it had raised $2.3 million to accelerate its bot platform. Originally begun as a workflow automation platform, Dexter recently shifted its focus onto the bot market. Dexter’s funding is the latest addition to a large series of venture capital funding events in the bot market. Despite the VC appetite for bot technology companies, the bot market might prove to be a tough environment for startups.

The previous statement doesn’t pretend to be an apocalyptic prediction for the bot startup ecosystem. Quite the opposite, I am incredibly optimistic about the potential of bots. However, unlike mobile technology or the internet of things, the bot technology market exhibits some very unique characteristics that could result in a challenging environment for startups.

5 Reasons why the bot market can be tough for startups

1. Messaging platforms are competitors and distributors

Messaging platforms like Facebook Messenger, Telegram and WeChat are becoming some of the most popular runtimes for bots. These platforms play a dual role as distribution channels, and as bot technology providers. By controlling distribution, the messaging platform incumbents are in a unique position attract developers and become more and more dominant in the space.

2. 99% of bots will be hard to monetize

One of the challenges of the bot technology market is that it relies on the same monetization channels established by the mobile and web markets. In other words, until now the bot market hasn’t developed new monetization channels. If we draw a parallel to the mobile market, we should assume that the vast majority of bot startups will have a challenge monetizing or developing meaningful user traction.

3. Many bots are just extensions of mobile apps

In the nascent bot market, a significant percentage of the popular bots have been extensions of well-established mobile applications. Those brands are attempting to expand the engagement model of their mobile apps to a new channel. That has a negative side effect for bot startups, as most of the popular niches that were uncovered in the mobile market will remain unavailable to bot startups.

4. Incumbents are entering the game early

In contrast to the mobile market, established incumbent IT vendors have been involved in the bot market since the very beginning with innovative offerings. In the current market, incumbents are leading the two main areas of the bot market: natural language processing (NLP) technologies and bot development platforms. Consequently, bot technology startups will be forced to compete with large technology incumbents from the very beginning which could be incredibly challenging.

5. The enterprise remains passive

The enterprise has been a significant element in the development of the mobile and web markets. However, with bot technologies, the path to penetrating the enterprise market is unclear. While there are many business scenarios that can be improved with bot technologies, there are many challenges that need to be overcome to for bots to establish themselves in the enterprise.

Five emerging bot market opportunities for startups

Despite many of the challenges listed here, we believe there are a few areas that should be interesting for bot startups. The rapid growth in the bot technology market and the active flow of venture capital into bot startups are driving new waves of innovation and opportunity. Based on the initial characteristics of the bot market, there are several areas that could experience high growth in the near future. Here's a look at five of them.

1. Natural language processing and natural language understanding

Natural language processing( NLP) and natural language understanding (NLU) are becoming foundational elements of bot technologies. While incumbents like IBM, Microsoft, Amazon, Facebook and Google are actively competing in the market, there are plenty of opportunities for startups that can simplify the experience of authoring and processing conversations and integrate them with bot frameworks.

2. Bot development platforms and back-end services

Development platforms are a tricky segment of the bot market for startups, because there are over a dozen very popular messaging platforms that have released their own bot development frameworks. However, I believe there is still opportunity in the market, especially for startups that pioneer new forms of user interface and end-to-end development models for bots.

In addition to the development frameworks, back-end services in areas such as integration, data storage, analytics and security are required by many bot solutions. Even though it is expected that platform-as-a-service (PaaS) incumbents will provide relevant bot back-end services, there might be a window for startups. 

3. Bot analytics

Analytics and performance monitoring is an exciting area of opportunity in the bot market. New user interface models for bots are based on conversations and simple UI constructs that require new forms of monitoring and analytics. For instance, a bot analytics platform should be able to track the sentences produced in recent user interactions, analyze sentiment and concepts and determine error processing rates, etc. Those unique characteristics are likely to catalyze a new group of startups. 

4. Bot security

Bot security models are likely to become increasingly relevant if you consider that they could be used to protect sensitive conversations between users and systems. While the security architectures of the web and mobile systems are focused on areas such as authentication, authorization and federation, the opportunities in bot security are likely to be in areas such as data privacy, compliance or access control.

5. Industry-specific bot solutions

Even though the enterprise market remains relatively passive in terms of the adoption of bot technologies, I believe there are opportunities for startups offering bot solutions in specific industry domains. Areas such as education, hospitality, public safety or field services seem like great fits for bots. Startups with the right industry expertise have an opportunity to capitalize in this nascent market and open the door to more generic enterprise bot solutions.

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