Interpreting Microsoft's Revised Virtualization Licensing Policy

Today Microsoft announced major changes to how several Microsoft applications (e.g. Exchange, SQL, SharePoint) are now licensed for virtual environments. The most significant part of the change is the removal of the 90 day license transfer restriction that had previously negatively impacted Microsoft application licensing costs in virtualized environments. All Microsoft licenses are assigned to physical servers, so if a VM is moved to a server without an available license for a given Microsoft OS or application, Microsoft considers the VM movement a license transfer. Once a license is transferred, it cannot be reassigned to another physical host for 90 days. This policy has long impacted virtualization high availability and live migration.

To understand the problem, consider having four VMs running SQL Server 2005 in an eight-node VMware ESX cluster. Per the previous policy, you would need 32 (8 X 4) SQL Server 2005 Standard Edition licenses in order to remain in compliance, given that all four SQL Server 2005 VMs could potentially be on the same physical host at the same time. Alternatively, you could purchase eight SQL Server 2005 Enterprise Edition licenses, which allow an unlimited number of VMs to run SQL Server 2005 for each licensed physical host. The bottom line - as soon as you virtualize SQL Server 2005, you would have to pay more money to add or upgrade existing SQL Server licenses.

With today's announced changes, you'll now only need to license the four SQL Server VM instances, and licenses could be transferred without restriction across all nodes in the cluster. The financial impact of this announcement to most organizations is probably negligible. Many IT shops simply ignored the 90 day license transfer restriction and had never taken the step to purchase additional licenses for the sole sake of virtualizing a Microsoft application.

It's important to note, however, that the 90 license transfer restriction has only been lifted on server applications licensed under a volume license agreement. Small and medium businesses (SMBs) that have individual Exchange or SQL Server licenses purchased through a VAR (Microsoft categorizes such licenses as Full Packaged Product [FPP] or OEM/System Builder) are not covered under the new policy. So let's apply the 90 day transfer restriction to FPP editions of SQL Server 2005. Assume that a small office is running two SQL Server 2005 systems and plans to virtualize them on a two-node Hyper-V cluster. With today's licensing, the office would have to double their SQL Server 2005 license investment. Since it's possible that the SQL Server 2005 VMs could both be on one server at a given time, you would need two SQL Server 2005 licenses for each physical host. So to run two instances of SQL 2005, you'd need to have four licenses. If you wanted to run them on a three-node physical host cluster, you would need six licenses. At that point, you'd qualify for a volume licensing discount. Volume licensing pricing is available for Microsoft server applications sold in quantities of five or higher.

It should also be noted that the new policy does not apply to server operating systems. So let's go back to the previous small office example. Suppose the office has six Windows Server 2003 systems, each with an FPP license. If those instances were deployed as VMs in a two-node physical cluster, you would need a total of twelve Windows Server 2003 Standard Edition licenses. So again, you have to double your software licensing investment to run the OS as a virtual machine. Alternatively, Microsoft is encouraging organizations to purchase Data Center editions of their server OS licenses to cover virtualization. One server OS data center edition license on a physical host allows an organization to run an unlimited number of virtual machines on that host. So the branch office in my example could purchase two Windows Server 2008 Data Center edition licenses (which include Windows Server 2003 downgrade rights) to cover the added cost of licensing. Of course, if you planned to run Hyper-V as your hypervisor, this wouldn't be a big deal. After all, you need to purchase Windows Server 2008 in order to get Hyper-V anyway. However, if you planned to run any other hypervisor, this clearly represents a significant (and in my opinion unnecessary) cost. This licensing strategy clearly places Microsoft's competitors at a disadvantage, as any other virtualization platform will always be more costly than Hyper-V.

In terms of platform support, you would be hard pressed to find an application or OS vendor that officially supports more virtualization platforms than Microsoft (i.e. Citrix, Microsoft, Novell, Sun, Virtual Iron, and VMware). Also, today Microsoft will announce that VMware has joined the Server Virtualization Validation Program (SVVP) and is now officially supported (see my blog post on the subject). 

Microsoft - great move today. I think many enterprises will appreciate the application licensing flexibility that your policy change has provided. Still, let's not forget about the small IT shops that do not have volume licenses. Many of them are likely candidates to run Hyper-V, so why make them double their Exchange or SQL Server licensing investment, for example, in order to leverage the benefits of virtualization? You made a great step with Vista Enterprise Centralized Desktop (VECD) licensing and allow organizations to deploy virtual desktop operating systems without mobility restrictions. So why restrict server OS mobility? Lifting the 90 day licensing transfer restriction across all product lines is simply the right thing to do. If there truly is a technical reason why OS or application mobility within a data center should be restricted on any level (as it does today with server operating systems and applications not covered by a volume license), please tell me what it is. I welcome your comments.

Posted by: Chris Wolf

Comments

[Seth]

This is phenomenal news and a huge benefit to most folks operating in a virtual environment. Sure, the retail copy license doesn't count, but everyone but the absolute smallest companies qualifies for Open Volume licensing and it is generally less expensive than retail copies. So yeah, there are still some folks who may not benefit from this, but the vast majority will.

Thanks for the pretty clear analysis of the ups and downs of this. Very useful!

http://blog.protonassociates.com/2008/08/microsoft-fixes-virtualization.html