Last week I blogged that a Microsoft licensing update was imminent. Last Friday, Microsoft’s latest round of licensing changes were released to the public as two documents:

• “Licensing Windows Server 2008 to Run with Virtualization Technologies“
• “Licensing Microsoft Server Products in Virtual Environments“

There is definitely some good news here. The policy revision that I expected to occur happened. CAL requirements for “indirect access to Windows 2008″ were lifted. So organizations will only need CALs for Windows guest OSs and the applications that run within them. The previous policy impacted customers running Microsoft’s Hyper-V hypervisor and did not affect licensing on any other hypervisor. The problem was further explained in my previous post.

Now let’s start with good news. The CAL requirement issue that impacted Hyper-V customers was brought to Microsoft’s attention in December. In a span of a month (including a two week holiday break), Microsoft was able to roll out an updated policy that clarified the issue. Licensing policy changes are often complex due to their impact on numerous moving parts (e.g., customers, OEM partners, software partners, and resellers). Microsoft definitely deserves credit for responding to their customers so quickly.

Also to Microsoft’s credit, they have implemented a number of changes since I first started blogging about this issue in May 2007. However, a few holes exist that still cause our clients a great deal of grief. Those problems were described in my post about Microsoft’s August 19, 2008 licensing policy update:

• VMs running Microsoft applications licensed under OEM or full packaged product (FPP) licenses are restricted to movement between physical hosts to once per 90 days. If you run management software that includes an OEM’d SQL Server license, for example, this mobility restriction would apply to you.
• Server OS licenses cannot be moved between servers more than once per 90 days, unless every server in a hypervisor cluster has adequate licensing to cover every server OS instance running in a VM.

I’m hopeful that mobility restrictions for OEM licensed applications will be removed soon. I’m not as optimistic about server OS mobility restrictions.

Microsoft acknowledged that server application mobility was a problem by lifting mobility restrictions on volume-licensed server applications. However, they made a conscious choice not to offer the same licensing mobility for server OS licenses. This move, in my opinion, is purely strategic. By not allowing server OS licensing mobility, Microsoft has effectively required organizations to purchase Windows Server 2008 Datacenter edition licenses for each physical host in a hypervisor cluster. There is no difference in cost between Windows 2008 and Windows 2003 Datacenter edition licenses, so any organization looking to go with a Datacenter-class license would buy the 2008 license and use Microsoft’s downgrade rights to run earlier OS versions (e.g., Windows Server 2003 or Windows 2000 Server).

Why have this policy? It’s pretty simple. By getting customers to upgrade to Windows Server 2008 Datacenter licenses as part of a virtualization project, the customers as a result are buying Hyper-V, regardless of whether they plan to use the hypervisor or not. So this strategy will always allow Hyper-V to come in at a lower price (free) than competing hypervisors. Microsoft’s competitors may not like this policy, but complaining about it isn’t going to get them anywhere. I haven’t heard Citrix complain about Microsoft trying to stack the deck against XenApp Server (formerly Presentation Server). Instead, they dealt with what would be considered a competitive disadvantage by building a better product. Is it fair that Microsoft is asking customers to upgrade licensing solely for the sake of running a server OS in a VM? Absolutely not. Microsoft will counter that this really isn’t a big issue for Microsoft customers with software assurance (SA), but I’ve talked to a number of customers who don’t have SA and feel this pain.

Microsoft isn’t the first vendor to leverage licensing to create a competitive advantage, and they won’t be the last. Of course, you’re the one caught in the crossfire. Consider the added expense you absorb for virtualizing to be collateral damage in Microsoft’s war with VMware. In other words, Microsoft knows their server OS license mobility restrictions are hurting some customers, and they are willingly doing this in order to create a competitive advantage. Wearing my customer advocate hat, I am naturally against any vendor policies that unnecessarily hurt our clients. However, I’m doubtful that Microsoft is going to lift server OS mobility restrictions unless customer reaction to this policy begins to result in lost Windows server OS sales.

Finally, while I don’t expect major changes in Microsoft’s core server OS licensing strategy, Microsoft must act to clarify OS and application licensing mobility for cloud service providers. I’ve talked to numerous service providers in the past year who want to offer hosting and co-lo services for virtual infrastructures, and allow clients to access capacity on-demand when it’s needed. I’ve talked to a few service providers about the impact of desktop hypervisors and how it would be ideal to virtualize a desktop OS and maintain a copy of that desktop as a VM in the cloud. That sounds good in theory, but there’s too much uncertainty regarding licensing compliance to make that model practical.

Good work, Microsoft, with your latest licensing updates. Now I’d like to ask you consider removing the mobility restrictions associated with OEM application licenses, and create a series of documents that clarify Service Provider License Agreement (SPLA) program licensing for virtual environments. Today, service providers can go to the ”Service Provider Use Rights” and “Licensing Overview for Outsourcers and Managed Service Providers” documents for clarity. However the “Licensing Overview for Outsourcers” document was last updated in February 2005.

With the state of the global economy, organizations are increasingly looking to do more with their IT budgets and continue to see virtualization as a key strategic initiative. We are all making tough choices and being asked to sacrifice on one level or another. How about “taking one for the team” (the IT community) and removing server OS license mobility restrictions? Money that organizations save on server OS licensing costs (for the sake of virtualizing already licensed server OSs) could be applied to other IT projects that directly benefit Microsoft.

What do you say, Microsoft? I’m hoping that by the next time I decide to write a blog post about licensing, it will be to share more good news that directly benefits your customers.