Natural Language Understanding Market Assessment, By Component [Solutions, Services], By Type [Rule-Based, Statistical, Hybrid], By Application [Chatbots and Virtual Assistants, Text Analysis and Sentiment Analysis, Content Analysis and Intent Recognition

Natural Language Understanding Market Assessment, By Component [Solutions, Services], By Type [Rule-Based, Statistical, Hybrid], By Application [Chatbots and Virtual Assistants, Text Analysis and Sentiment Analysis, Content Analysis and Intent Recognition, Customer Experience Management, Data Capture, Interactive Voice Response and Message Routing, Others], By Industry [Banking, Financial Services and Insurance, Media and Entertainment, Retail and E-Commerce, IT and Telecom, Healthcare, Manufacturing, Education, Others], By Region, Opportunities and Forecast, 2017-2031F

Global natural language understanding market is projected to witness a CAGR of 24.11% during the forecast period 2024-2031, growing from USD 27.99 billion in 2023 to USD 157.54 billion in 2031. The natural language understanding (NLU) market is on the rise owing to advancements in artificial intelligence. The companies and organizations in the AI industry produced 51 machine learning models, while academic institutions contributed 15 models. The partnership between the AI industry and academic institutions reached an all-time high at number 21 on notable models resulting from their collaboration. As per the Artificial Intelligence Index Report 2023, the release of 149 foundation models in 2023, which was more than double the number released in 2022, demonstrates this accelerating pace. In addition, 65.7% of those models were open source, indicating a shift towards accessibility and collaboration.

The United States solidified its position as a global leader in artificial intelligence with 61 of the top AI models in 2023, twice as many as those from both the European Union and China combined. Rising training costs associated with state-of-the-art AI models such as OpenAI Generative Pre-Trained Transformer 4 (GPT-4) will contribute to significant natural language understanding market expansion as the industry players are incentivized towards other potential approaches.

For instance, in March 2023, Nuance Communications, Inc., and Microsoft Corporation launched Dragon Ambient eXperience (DAX) Express, the first fully AI-automated clinical documentation application utilizing GPT-4, designed to reduce clinician paperwork and improve patient care.

Enhanced Customer Experience Drives the Natural Language Understanding Market

Enhanced customer engagement is a major growth driver in the natural language understanding (NLU) market. By using AI, remarkable results are witnessed in the trends of customer services in banking, such as AI being used to process customer inquiries faster and more accurately via chatbots. These chatbots represent technological innovations designed to reduce human interactions and increase efficiency, satisfaction, and reliability. AI in banking is projected to reach USD 64.03 billion by 2030. Chatbots alone are expected to save around USD 7.3 billion in business. The transition to instant, high-quality responses reflect the transforming consumer needs and underscores the rising significance of natural language understanding solutions for better customer experiences, further driving the market growth.

For example, in June 2024, IBM Corp. announced the general availability of its new watsonx Assistant for Z, a generative AI assistant designed to streamline mainframe management, along with enhancements to other watsonx assistants.

Conversational Artificial Intelligence Propels Market Growth

Conversational Artificial Intelligence (AI) is significantly boosting the growth of the NLU market. Companies worldwide spend USD 1.3 trillion on 265 billion customer service calls yearly, increasing the demand for efficient solutions. Conversational AI, like chatbots and virtual assistants, are transforming customer service by offering prompt, reliable answers with minimal human interaction, which represents more investments in natural language understanding solutions and can facilitate interactions and reduce costs. The growing demand among enterprises for more efficient operations and better customer experiences is helping to expand conversational AI, thereby promoting growth in the natural language understanding market.

For example, in September 2024, SAP SE introduced Joule, a generative AI copilot embedded in its cloud enterprise portfolio, designed to transform business operations with proactive, contextualized insights for improved outcomes.

Government Initiatives Acting as a Catalyst

Governments are helping to drive the growth of the natural language understanding (NLU) market with supportive initiatives. For instance, in the United States, the AI Initiative and the European Commission’s AI Act provide important funding and set clear rules that encourage innovation in natural language understanding. China’s AI development plan signals new progress in language technology. The United Kingdom's National AI Strategy supports research and partnerships. Furthermore, India's National Artificial Intelligence Mission and Canada’s Digital Charter are making significant impacts by investing funds in AI research work to ensure responsible use. These efforts enable the rapid development and broad proliferation of natural language understanding technologies.

For example, in May 2023, the United States invested USD 140 million to establish seven new National AI Research Institutes. This funding aims to foster responsible AI innovation, enhance the country’s AI research infrastructure, and support the growth of a diverse AI workforce.

Chatbots and Virtual Assistants Lead the Natural Language Understanding Market

The higher adoption of chatbots and virtual assistant services majorly influences the natural language understanding market. The chatbot market is expected to grow as businesses are using global chatbots to reduce customer complaints and respond at a faster pace than before. 90% of companies reported quicker complaint resolution using chatbots, according to the Massachusetts Institute of Technology (MIT) Technology. Therefore, chatbots entered mainstream messaging apps, such as WhatsApp and Facebook Messenger, fueled by the push for efficiency and personalization in customer interactions. The market is competitive, with established key players performing key innovations to stay ahead. For instance, in July 2024, Salesforce, Inc. announced its first fully autonomous AI agent, Einstein Service Agent, which resolves customer service cases using natural language and generative AI, enhancing efficiency and enabling 24/7 support.

North America Dominates the Natural Language Understanding Market

North America dominates the natural language understanding (NLU) market owing to a well-established technological infrastructure and substantial contributions towards artificial intelligence. The industry has the largest technology companies in the world, including Microsoft Corp., Alphabet Inc., and IBM Corp. These companies have dedicated a substantial volume of resources for research and development in this field, allowing them to design increasingly advanced natural language understanding models that other sectors, such as healthcare, finance, or retail, can simply adopt. Moreover, high concern for data privacy and security in the region has resulted in the increasing advancement of strong language processing solutions, making it more trustworthy and reliable, accelerating North America's natural language processing market throughout the forecast period.

For instance, in February 2024, Adobe Inc.’s new AI Assistant in Reader and Acrobat enhances NLU by providing summaries, answering questions, and formatting content from trillions of PDFs, utilizing advanced AI and machine learning technologies.

Future Market Scenario (2024-2031F)

Natural language understanding systems will be multilingual and work on multiple dialects, thereby enabling global connectivity.

Natural language understanding use cases will range from customer service to healthcare, finance, and education, making it more accessible and efficient.

Chatbots and virtual assistants will deliver increasingly personalized experiences, using more sophisticated natural language understanding to recognize user intent based on the preferences of a specific person.

Natural language understanding systems will develop a better emotional understanding, allowing for more empathetic and human-like interactions.

Key Players Landscape and Outlook

AI propels the natural language understanding market as most of the prominent companies are focusing on improving chatbot and virtual assistant functionality, automating customer service, or building more sophisticated algorithms for natural language processing. The potential of the market is enormous, with an increase in demand for customized customer experience and streamlined operations across industries. Businesses further plan for expansion as investment of funds will be channeled into research and development, which should, in turn, transform multilingual support and emotional intelligence. Furthermore, the proliferation of natural language understanding applications across healthcare and finance industries will continue to boost market prospects.

In August 2024, OpenAI, Inc. partnered with Condé Nast, a subsidiary of Advance Magazine Publishers, Inc., to enhance AI-driven news discovery. This collaboration will integrate content from Condé Nast’s brands into ChatGPT and SearchGPT, improving search features and user experience.

Moreover, In June 2024, SAP SE allied with Mistral AI to upgrade its enterprise software with advanced large language models to unlock new opportunities and value for SAP customers in the AI era.