In 2004, Microsoft revealed its licensing plans for multiple-core processors, ending a lot of confusion about that topic and instigating the widespread deployment of those microprocessors. With more and more enterprises turning to virtualization solutions for production deployments these days, Microsoft decided to follow suit and develop a strategy for virtual machine (VM) OS licensing.

Understanding Virtualization
Until recently, VMs—OS environments that run inside software-based PC environments and that can be hosted on PC clients or servers—were used largely in testing environments. For example, a software or Web developer can create a number of VMs, each with its own OS versions (or even Internet Explorer—IE—versions) to test applications, Web services, or Web applications. Or, a trainer might create virtual environments so that he or she can capture screen shots of an OS installing or booting up.

Over the past few years, this situation has changed. Although people still use VMs for testing environments, a growing number of enterprises are rolling out VM server products, such as Microsoft's Virtual Server and EMC's VMware GSX Server and ESX Server, to consolidate servers and deploy legacy systems in VM production environments. Because these legacy systems aren't used for testing but rather for production, the question of licensing becomes more urgent.

Until Microsoft's recent announcements, OSs installed on VMs were subject to the same licensing fees and conditions as OSs rolled out on non-virtualized hardware. To end this confusion, Microsoft decided to enhance the licensing for both Windows Server 2003 R2 and Longhorn Server to cover VM usage.

R2 Virtualization Licensing
Enterprises that license Windows Server 2003 R2 Enterprise Edition will be able to run four copies of that OS in VMs in production environments. This produces a potentially huge savings for enterprises. Bob Kelly, the general manager of infrastructure marketing in the Windows Server System Group at Microsoft, told me that before this change, customers would pay $4,000 for a hardware license and $4,000 for each virtual OS license, incurring a total cost of $20,000 for five licenses. Under the new licensing terms, the same number of physical and virtual OS installations would cost $4,000. "This is clearly the right thing for us to do," Kelly said. What's most amazing about this change is that the licensing applies to VMs running under both Virtual Server and VMware's products. This means that users of GSX Server and ESX Server can take advantage of the R2 licensing changes.

Longhorn Server Virtualization Licensing
When Longhorn Server is released, Microsoft will continue the Windows Server 2003 R2 Enterprise Edition licensing I just described and will add a new licensing option for Datacenter customers. This new licensing option gives any enterprise that licenses Longhorn Server Datacenter Edition the ability to run an unlimited number of instances of Datacenter on VMs. That's a seismic shift in licensing, and a change that should make Datacenter Edition the obvious choice for large enterprises that want to migrate legacy systems to virtual environments. And yes, as with the R2 licensing change, the legacy systems can run on Microsoft or VMware server platforms.

Other Changes
Microsoft is pursuing a number of other initiatives to help enterprises foster adoption of both virtual environments and, naturally, its own VM disk format, Virtual Hard Disk (VHD). First, Microsoft is licensing the VHD format to third parties royalty-free. The company is also trying to standardize the management model for virtual environments and is working to improve its own management tools—Systems Management Server (SMS), Microsoft Operations Manager (MOM), and so on—so that they work more seamlessly with VMs. And although the company had little to say on this topic at press time, Microsoft is also communicating with VMware about ways in which the two companies' competing virtual disk formats might become more compatible.

Recommendations
For enterprises that want to use virtual environments to host legacy systems, Microsoft's recent licensing change is good news, although one might gripe about the need to upgrade to Windows Server 2003 R2 to gain the initial benefits. Going forward, however, VM licensing will be less confusing and, most important, less costly for enterprises. If you've been on the fence about virtual environments, these licensing changes should jump-start your investigation into this increasingly viable technology.