Interaxon

This wearable device reads your brain waves. Is there a market for it?

February 10, 2014: 10:48 AM ET

Scientists have barely scratched the surface on how the brain works, but a Toronto-based tech company believes that neurons are the best way to control electronic devices.

By Brady Dale

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FORTUNE -- Ariel Garten knew from the start she wanted to make a product that makes people think.

The chief executive of the young Canadian company Interaxon, Garten sought to use brain-controlled interface technology -- a science fiction-like development that allows a device to be controlled by the brain's electrical activity -- in a wearable device. With Google's Glass and Nike's FuelBand leading the way, so-called wearables are expected to grow from an $8 billion (in annual revenue) market today to a $20 billion one by 2017, according to Futuresource Consulting. Using brainwaves to control them seemed like, well, a no-brainer.

But Garten wanted to create something meaningful -- something that people would use every day. Not a gadget or novelty. So she watched and waited for the market to develop. Muse, the company's new $299 brainwave-controlled headband, will start shipping in May. With a splashy debut at this year's Consumer Electronics Show and what Garten reports as strong pre-orders from consumers and corporate employee assistance programs, the company's wait to go into hardware appears to be paying off.

Garten and her two co-founders, Trevor Coleman and Chris Aimone, started their Toronto-based company in 2009 and spent its first three years creating experiences driven by technology based on electroencepholagraphy, or EEG for short. Whether it was a chair that levitated into the air as a person became more relaxed or giving several thousand visitors to the 2010 Olympic Games the chance to change the lighting on Toronto's CN Tower, Canada's Parliament Building and Niagara Falls, the company showed users that their minds could influence the world.

MORE: Is wearable technology just for geeks?

The company earned roughly a million dollars per year doing branded installations. More importantly, though, the efforts yielded insights into how people interacted with the technology, helping Interaxon better understand how to apply EEG tech to a consumer product.

Garten described a day when someone came into the lab to do one of their user tests. "It was the first time we had really test-run the algorithm which could tell when you were focused and when you got stressed," she says. "There was a little bleep on the screen every time he got distracted. My heart sort of jumped every time I saw that bleep." Her team realized what they had to offer people was a way to learn to exercise control over themselves.

For the last two years the team has largely shut down its demonstration and consulting operations to focus on developing Muse, a personal EEG device that sends readings to your phone or tablet. "Basically, [it] teaches you to calm your mind," Garten says. "With a calm mind, you can do more in life."

Muse is shaped like a conventional headband, but it sits on your ears like eyeglasses and runs across your face, just above the eyebrows. It has seven sensors that collect data. Garten says the included application has activities on it that help to calm and settle the mind, such as before bed. Soon, it might also be helpful for noticing when your mind has wandered during a task.

MORE: Nike+ Fuelband SE: What wearables should be

The company has raised about $7.5 million to date, Garten says. It closed a $6 million round last year, on an offered $5 million. One of its investors is the actor Ashton Kutcher, who worked references to a company resembling Interaxon into an episode of the CBS sitcom Two and a Half Men. Another part of their funding has come from an IndieGogo campaign, where it beat its $150,000 goal by $137,000.

At this year's Consumer Electronics Show, people waited as long as an hour just to get a chance to try the Muse device. Garten estimated a 75% conversion rate for pre-order sales at the show. "As soon as people try it, they get it," she says. Muse is also already generating corporate sales. Garten declined to share specific figures but says that employee assistance programs are pre-ordering the device to help staff with stress, attention, and overall wellness.

There may also be a market for inattentive children. Research from 2003 has shown that EEG based training can serve as a drug free alternative for treating ADHD.

Still, similar devices didn't deliver. Zeo was a device that also took EEG readings of people to help them get better rest. The sleep industry is a $32 billion industry, and Zeo had $12.3 million in equity funding, according to a 2010 SEC filing. That's nearly twice what Interaxon has. But the company shut down. One reason it failed? Because the public didn't understand it. Less accurate sleep monitors that also measured other activities, such as the Fitbit or Jawbone's Up, undermined Zeo's market.

User education, Garten says, is the biggest hurdle Interaxon faces.

MORE: The third wave of computing

There are a number of EEG products on the market, including those by the companies NeuroSky, Emotiv, and Mindwave. Garten believes that Interaxon is different because the company is vertically integrated -- even the algorithms, which are sophisticated enough to accommodate for different sleep patterns, moods, and sweat, are developed in house.

Further research will extend its functionality, Garten says. "As we start to expand what Muse can do, those applications will be provided to Musers." Each headset will come with a software development kit to allow third-party developers to build upon that foundation.

For professionals and creatives, the possibilities the technology creates could be game changing. Improving attention alone could be enough, but Microsoft's Head of Thought Leadership Kelly Jones recently wrote on Huffington Post that consumers are demanding technology that's "Intelligently On" -- technology that knows a movie is no time for a phone to ring and a software update notification that can wait until you've met your deadline.

In other words, future technology ought to read your mind. Interaxon hopes that such a statement is as much literal as figurative.

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