> That would not only be them conceding that they couldn’t win on mobile, but that would also reduce them to yet another Android Phone manufacturer that has to spend tens of millions of dollars on low margin devices that won’t sell.

There is a third way, assuming the Android license allows for it:

Microsoft concedes they can't replace the OS layer

Microsoft forks Android

Microsoft focuses on the next battle that could be won: making Cortana/whatever the default digital assistant in their build.

For fun, let's then assume Google tries to block this.

Microsoft sues Google for "bundling" and uses their own case where they were forced to unbundle the web browser as precedent.

(I say this as someone who likes his iPhone but hates Siri.)