With $55 Windows Phone Microsoft is getting ready to replace their feature phone business

Due to be replaced.

Speaking to the Financial Review recently, Stephen Elop notes that Microsoft did not have to make money on handsets as they could do so using services.

He said:

“If I was just selling the hardware, I [would] have only one way to make money, and that is on the the gross margin of the device. Microsoft has the full breadth [of hardware and software], so we can deliver a total experience to consumers and make it very cost-effective because we have all of these levers to work with. We can use Bing for search and make money there. If you’re just the hardware manufacturer, that’s much harder.”

The move explains in part Microsoft’s determined push into the low-end – not only is this a short cut to market share, but it should also generate revenue in the long term, vs simply making a loss with no possibility of any return.

A device which epitomises Microsoft’s low-end push is the still unannounced RM-1099, which Microsoft appears to be testing in India.

According to importation logs on Zauba the handset’s cost price is only 3,489 INR (around $55) which would make it a new low for Windows Phone.

Zauba notes its a 4 inch dual-SIM device, but more details have leaked in the past suggesting it has a WVGA screen, 2-3 megapixel rear and VGA camera, 1 Gb RAM, 8 GB storage and a dual-core Snapdragon.

Microsoft still has 10% market share in feature phones in India, not far off market leader Samsung with 17%.  Their smartphone business in India is much smaller.

At these prices the handset starts to seriously compete with feature phones, and it may be the key to finally growing Windows Phone market share.