PYMNTS MonitorEdge May 2024

Billion-Dollar Buddies? Forecasting A Boom in the AI Companion Industry

Chatbots, AI

The industry of companion apps and robots powered by artificial intelligence (AI) is rapidly expanding.

Greg Isenberg, formerly of WeWork’s startup hub, recently speculated on the financial potential of chatbots that simulate relationships, drawing from the behavior of a young investor who said he spent $10,000 monthly on such technology.

On a post on X (formerly Twitter), Isenberg highlighted the success of Match Group in the dating app industry, with a market cap of $9 billion, and predicted that a similar AI-driven platform could generate over $1 billion.

As the concept of AI companions shifts from sci-fi to business plans, experts are weighing in on what could be the next commercial frontier. Beyond mere conversation partners, these AI entities are expected to offer personalized experiences with the potential for brand integrations and commercial tie-ins. 

“AI companions are an evolution and outgrowth of our increasingly digital world,” Devin Daly, CEO of Impel AI, told PYMNTS. “We live in a fast-paced, busy society, and many people struggle with information overload. Not only will AI companions provide instant responsiveness, accessibility and support, but they will also sort through vast amounts of data to help people make decisions.”

AI Companion Boom?

AI companions, equipped to mimic conversational nuances and provide emotional support, are at the forefront of a tech revolution that could blur the lines between human and machine communication.

General chatbots powered by AI, like ChatGPT, offer users a versatile platform for discussion, learning and problem-solving, adapting their responses to various topics. Meanwhile, platforms like Replika focus on emotional engagement and personalizing interactions to foster a deeper connection.

Daly said that the rise of specialized AI applications using advanced large language models (LLMs) tailored for specific industries is transforming the development of personalized AI tools, like AI companions.

These AI companions are set to change how consumers make decisions by evaluating options, solving problems and performing tasks. They offer customized recommendations by considering individual tastes and previous actions and analyzing real-time data. 

“As AI programs (and the generative AI technology and LLMs that power them) learn, adapt, modify and improve over time due to machine learning, NLP [natural language processing] and neural networks, we see a unique level of customization in AI companions,” he added.

Daly said AI companions are becoming more common in commerce and retail because of their ability to make decisions and offer advice. They can assist consumers in making more informed, deliberate and sophisticated purchasing decisions. As AI grows more personalized, its recommendations appear increasingly customized to individual users, which builds trust over time.

Daly said AI chatbots that serve as companions could be helpful for highly considered big purchases with longer sale cycles, such as home or vehicle investments. For example, AI companions can assist consumers in purchasing automobiles by providing comprehensive guidance throughout the decision-making process.

“From researching vehicle options based on individual preferences and budget constraints to comparing features, prices and reviews, these companions will empower buyers with the information they need to make informed decisions and navigate the complex car-buying journey with confidence,” he said. 

Companion bots may also be useful for advertising. The Mozilla Foundation, a nonprofit organization, released an analysis of 11 romantic chatbot apps, revealing that nearly all of these apps either sell user data, use it for targeted advertising, or fail to disclose these practices in their privacy policies adequately. 

A Cure for Loneliness? 

Virtual companions are increasingly being embodied in physical forms. Technology companies are pioneering companion robots that aim to enhance the quality of life for seniors living alone and address the increasing loneliness and social isolation among older people. These advanced robots, equipped with AI, are being integrated into elderly care programs across the globe.

The development of companion robots has been driven by the growing need for companionship for many seniors, especially those whose family members live far away or who have lost their spouses. These robots are not just machines; they are designed to interact with their human counterparts in a way that fosters emotional engagement. They can converse, play games and even remind users to take their medication and maintain their daily routine.

Studies have shown that interaction with these robots can decrease feelings of loneliness and improve the outlook on life for many elderly individuals. However, some experts caution that there may be potential drawbacks associated with AI companions. 

“On the one hand, this has the potential to enhance individual happiness, but on the other hand, it may also lead to reduced sociability among people,” Mikhail Dunaev, chief AI officer at Comply Control, told PYMNTS. “After all, interacting with another human may seem less appealing when you have a companion perfectly attuned to your personality and devoid of personal needs that you must worry about.”