Microsoft last week officially announced a product that Windows IT Pro UPDATE readers have known about since the end of 2008: A new low-cost version of Windows Server called Windows Server 2008 Foundation. Foundation Server, as I'll call it, has already been made available to mainstream server makers such as Dell, HP, and the like, and will become available with new low-cost hardware in the weeks ahead. Foundation Server will only be sold with new hardware.

"Yeah, it's kind of boring," Microsoft's Iain McDonald joked with me during a recent briefing. "Here we are releasing another version of Server."

I had thought that Foundation Server would be an R2 SKU, that is, a version that would ship with Windows Server 2008 R2 in late 2009. So last week's announcement was somewhat of a surprise. But McDonald told me that Microsoft saw a glaring hole in its product line, one that wasn’t filled by the consumer-focused Windows Home Server or the overly-functional Small Business Server (SBS).

This year, it's possible to purchase perfectly capable low-end servers for well under $1000. So it doesn't make sense that Microsoft's lowest cost infrastructure server, Windows Server 2008 Standard, costs $500. Clearly what the company needed was something that offered core Server features but came in well under that price.

Foundation Server satisfies this need, and I think it's going to be hugely successful in several different markets. The software will typically cost $150 to $200, depending on how the server makers present things in their online configurators, McDonald said.

It features most of the core Windows Server 2008 feature set but cuts down on some roles and technical capabilities. For example, Foundation Server works only with single socket servers, though it supports multiple processor cores. It supports only 15 users (which is 30 SMB connections) and doesn’t support Windows CALs, though it does support other kinds of CALs. You can create a standalone, single server domain with Foundation Server, and you can add domain controllers (DCs) after the fact or add Foundation Server to an existing domain, though its 15-user ceiling still applies.

The biggest potential limitation concerns virtualization. Foundation Server doesn’t include Microsoft's Hyper-V technology, and it isn’t licensed for use with any virtualization technology. Legally speaking, you aren’t allowed to install third-party virtualization solutions on the box either. But there's no limit on app servers, so you could theoretically install Exchange Server or SQL Server on the box if you wanted to.

Microsoft is aiming Foundation Server very squarely at two markets. The first is emerging markets, where 25 percent of Windows Server installs are pirated or users are simply going with a free or low-cost Linux-based OS. The second is very small businesses (15 or fewer employees) that want a simple server but don't need or can't afford the many services offered by SBS.

But I think Foundation Server will find a happy home with a third group: Technology enthusiasts and other power users--database admins, developers, IT pros, and so on--who believe that the Server versions of Windows are superior on many levels and could be advantageous in day-to-day use. Since Foundation Server costs about the same as a mainstream client version of Windows, suddenly there's no financial downside to running a server as a workstation.

Foundation Server makes a lot of sense, particularly when you look at the current economy and how businesses of all sizes are cutting back on technology purchases. It appears to be the right product for the right time, and I’m looking forward to reviewing it soon.