Microsoft adds virtual cores to Windows Server licensing

Microsoft has announced a major update to its Windows Server licensing program, which in part was driven by threats of legal action by the European Union.

The most notable change is adding the option of licensing Windows Server based on virtual cores in addition to the current option of paying based on the number of physical processor cores in host machines.

“Today, Windows Server is licensed by physical core, which means customers must have access to the physical server hardware to ensure that they have enough Windows Server licenses to cover all physical cores in the machine,” wrote Nicole Dezen, Microsoft’s chief partner officer, in  a blog post.

“With the virtual core licensing option, customers can elect to license Windows Server by the number of virtual cores they are using in virtual machines, making Windows Server easier to license when virtualizing or outsourcing.”

The changes only apply to customers with a Software Assurance license, a license that’s paid for on top of Microsoft’s software licensing costs, to spread out the payments over several years and includes updates and upgrades.

There’s quite a bit to the changes. The main one is licensing Windows Server on a virtual core basis. Under this model, customers can buy licenses for only the virtual cores they need (with a per-VM minimum), without being tied to a physical number of cores on the server.

Software Assurance licensees can move Windows Server workloads to Azure virtual machines and apply their licensing tied to physical cores to the virtual cores in an “outsourcer’s infrastructure.”

The new licensing schedule adds Flexible Virtualization, which lets customers migrate on-premises software to “any cloud providers infrastructure—dedicated or shared.”

Virtual Desktop Application (VDA) add-on licensing for Windows 10 and 11 is eliminated, but just for Microsoft 365 F3, Microsoft 365 E3, and Microsoft 365 E5 users that “don’t have a primary Windows Pro device.”

One- and three-year subscription options are available for many products including Windows Server, Remote Desktop Services (RDS) and SQL Server, “through partners in the Cloud Solution Provider program, to offer price stability with long-term subscriptions.”

There’s a big caveat to this: Microsoft will allow users to migrate from on-premises Windows Server into the cloud, with the exception of what Microsoft calls listed providers. They are Alibaba, Amazon Web Services, Google, and Microsoft (conspicuously absent: IBM and Oracle). Needless to say the listed parties didn’t take the news too well.

Microsoft says the target is clouds run by Microsoft’s partner community and the purpose is to help virtualize outsourcing. Microsoft says this change will help cloud providers appeal to customers with legacy Windows Server workloads by enabling them to move these workloads from on-premises servers to the cloud.

“It’s certainly a step in the right direction and will alleviate some of the near-term pressure that Microsoft has faced in Europe,” said Greg Macatee, senior research analyst for Infrastructure Systems, Platforms and Technologies at IDC. “To the extent that smaller CSPs are able to better compete should, if nothing else, have an indirect effect of supporting Microsoft’s ‘ecosystem’ play by helping retain and potentially adding more customers into its partner network.”

Microsoft said that the changes are in effect “around the world.” It’s no accident Denzen announced it, she just joined Microsoft has the head of the partner program. But the reason for the change is European CSPs had complained to the EU that Microsoft’s software licensing programs were unfair.

If there is one thing Microsoft doesn’t want is another go-around with the EU’s antitrust group. Last May, Microsoft president Brad Smith said in a blog post, “We will make it easier than ever to license Windows Server for virtual environments and the cloud by relaxing licensing rules that reflected legacy software-licensing practices, where licenses are tied to physical hardware.”

The change keeps the EU off its back but it does benefit customers, too, says Macatee. “Generally speaking it’s beneficial in terms of simplifying the pricing structure around Windows Server products, especially for customers with more complex hybrid IT environments,” he said.

He adds that there is more upside throughout Europe, where there is a more fragmentation in the CSP market than in North America. “Time will tell how much customers take advantage of this benefit directly, but we see more upside than not,” said Macatee.