Licensing Microsoft products

Microsoft, unlike most companies, has a somewhat confusing licensing system for its software. Not the most confusing one, believe me, but when you first face the need to buy their software, your eyes start to glaze over.

So what is a system administrator at a small company supposed to do if he wants to purchase software from MS, but simply can't get his head around all the nuances of the process and can't answer the most important question - "what exactly do I buy?"

This article is meant to give you solid ground to stand on - to spell out plainly what goes where, how, and why. In plain, understandable language. Without all the OLP, SA, GGK, and similar MS abbreviations that show up in price lists.

Let me note right away that I'm deliberately not touching on Enterprise licensing schemes - that's a separate topic for a separate conversation with a ton of parameters, discounts, "several-in-one for one price" options, and so on... a conversation to have directly with your software vendor's manager! And it's usually of interest to bigger companies. If we were to discuss it here, it would only confuse you.

I'm also not covering every product. By analogy, you can apply the same licensing-logic template to everything else Microsoft sells.

So, let's begin our little opus.


Boxed or...?

License types can be divided into two main classes: boxed (retail) licenses and volume (corporate) licenses.

As the name suggests, boxed licenses are typically sold in boxes, most often containing installation discs and an activation key valid for that one box only. Boxes are sold individually. This means you can buy 1, 2, 3... as many boxes as you like.

Pros of boxed licenses:
+ You can buy any quantity, from 1 to... however many you need;
+ A box isn't directly tied to a legal entity;
+ A box usually comes with a disc you can install the software from right away;

Cons of boxed licenses:
- The proof that your purchased software is licensed is the box with the disc (if there was one), so you need to keep all the boxes... not by type, but literally every box you've ever bought;
- Each box has its own activation key, and that exact key must be used on the installed copy (i.e., you can't use the same key on several copies - you'll easily get caught on that);
- You won't have an account on Microsoft's website where you can track purchased licenses, view activation keys, and so on;
- Aside from MS Office, boxed copies are usually more expensive than volume licenses.
- With a boxed license, you must use exactly the version of the software indicated on the box. That is, having bought MS Office 2010, you have no right whatsoever to use Office 2007!


Microsoft's volume licenses are essentially "paperwork." That is, a volume license for N copies of a product (program) is a blue-ish little envelope with a license agreement inside, and the license itself in the form of a tamper-proof sheet with various markings, including the license number, the number of products licensed, the purchase date, and so on, plus several sheets with various other information.

Pros of volume licenses:
+ No boxes - no need to store lots of bulky clutter, especially if you're licensing not 3-5 computers, but, say, 100.
+ You have the option of using a KMS server (more on this below). In a nutshell - you don't need to enter an activation key for every installed copy of the product - you just install the program and it activates itself. And the headache of the activation server telling you "tough luck, you're activating too often" when you're reinstalling the program (system) for the third (Nth) time goes away;
+ Volume licenses are usually cheaper than boxed copies.
+ Volume licenses support so-called Software Assurance (SA - more on this below).
+ Downgrade rights. This means you can use any older version of the software of the same type and class as the one you purchased. For example, you bought Office 2010 Standard but want to use Office 2007 Standard? Go ahead! However, downgrade rights don't let you use an older version of a HIGHER class, for example Enterprise instead of Standard. For instance, when purchasing Office 2010 Standard you cannot "drop down" to Office 2007 Enterprise or Professional! Only to Standard or a lower class!

Cons of volume licenses:
- The minimum number of licenses you can buy in one purchase is 5. That is, in a single purchase you cannot buy fewer than 5 licenses, even if you only need, say, 4. And the same goes for the next purchase too. This means the ">=5" rule applies to EVERY purchase, and even if you've already bought 10 licenses, the next time you go to buy more, you'll again need to buy at least 5!
- Licenses are firmly tied to the legal entity that purchased them;
- All the installation files, sorry to say, have to be downloaded from Microsoft's website. That said, you won't be allowed to download something your license terms don't permit you to install, so it's harder to make a mistake here than just installing whatever you feel like.


Bottom line:

If you're purchasing licenses for a very small number of computers (in total - fewer than 5), or if your legal entity keeps changing, your choice is boxed licenses.

If you have 5 computers or more, especially significantly more, I recommend looking toward volume licenses.



Licensing schemes: buy, get on credit, or rent?

One caveat right away - those who chose "boxes" as their licensing option can skip this section - it doesn't apply to them anyway.

So, what do we picture when it comes to licensing? Money... or more precisely, its movement from the buying company's budget to the manufacturer's budget. The second thought is "so we'll have licenses." That would all be fine, but here Microsoft throws us another "hold on, question!".

We're offered 3 ways to spend our money:

1) Simply buy it. Just pay the required amount for the required number of the required products. The simplest option: money in the morning, and by evening... um, licenses. In this case you acquire the product as a one-time purchase and acquire the right to use it, essentially forever (no restrictions). This is most similar to "went to the store and bought it".

2) A 3-year installment plan. In practice, the installment terms may change from time to time, but the essence, I think, stays the same: splitting your spending into 3 parts (or some other number of parts - however Microsoft decides down the road).
So, in the morning you pay 1/3 of the money, and by evening you get... yes indeed, full licenses in the quantity you need of the product you need. A year later you pay another 1/3, confirming your right to keep using the product. And finally, a year after that, you pay the last third - and from then on you use the product without restriction, as much as you like.
This is most similar to a plain old loan. And the word "installment plan," which software vendors often use and which is frequently perceived as an "interest-free loan," actually denotes a quite "interest-bearing" loan. In the end, with all the tricks factored in, the final cost can grow up to twice as much.

A remark. This option unconditionally includes the "Software Assurance" option for the entire duration of the installment plan, which we'll talk about a bit further down. In a nutshell - it lets you use the latest versions of products that were released after you purchased the version you bought.

Remark 2. Despite the "interest" on the loan, the price you pay each year is strictly fixed and doesn't fluctuate, whereas Microsoft's software pricing sometimes goes up, sometimes slightly down. And of course, the overall trend is toward getting more expensive. But you keep paying at the old price.

3) Rental. Plain and simple - rental. You pay a certain amount of money each year for the use of the programs (systems). If you stop paying, the software abruptly, but inevitably, becomes unlicensed, and you stand every chance of "getting it in the neck" if an audit comes knocking.

Rental also includes Software Assurance. Moreover, for some products, rental lets you change the number of licensed copies between payments.

What does this look like? Say you paid for 30 copies of the program. So you happily use 30 copies. But then, before the next payment is due, the number of computers that need this program installed increases. What do you do? Rush to buy more somehow? Redo the contract? No! Until the next payment, you simply keep using ALL the copies of the program. More than the 30 you purchased? No problem. You'll pay at the next payment, and even then only for the following year. You don't pay for the time you used "above the norm".

Trick number two: what if, before the next payment, the number of your computers suddenly drops back down to 30 (or whatever your baseline is)? What do you do? How do you pay for having used "extra" copies of the program for a few months? Will you have to pay for them in full at the next payment? What if you no longer need them at all?
Long story short, you won't have to pay. The count of copies is taken right before the payment, so if the number of your computers increases seasonally every year, then you... yes indeed, get to use part of the program's copies for free (provided the count goes back down by the time of payment).



Software Assurance - confusing words made of familiar letters

"Box buyers" will have to skip this section too.

I've already mentioned this term several times - Software Assurance. So what is it exactly?

So, first let's understand what we mean by "buying" software licenses.
When we buy a program (including an operating system), we're buying THAT SPECIFIC VERSION. Exactly the one we purchased.

Let me give an example. You bought Windows XP Professional. All is well, but then Windows Vista comes out. The first thought is - I bought a license for "Windows," so can I use Vista? Nope. You bought XP. Not Vista, not Windows 7, but XP! Specifically XP. Which means you can only use XP.

But if you really want to, then... then you can purchase the Software Assurance option alongside your licenses. It's sold for a number of years and, while it's active, lets you use every new version released of the same class as the license you purchased.

Going back to our XP example - if you had Software Assurance active on the date Windows Vista was released, you can upgrade your XP Professional to Vista Business level. And if SA was still active when Windows 7 came out, you can upgrade to Windows 7 Professional. Well, I think you get the idea.



Downgrade rights

Not for boxed licenses! So "box buyers" - keep floating further down the article. There's still something interesting for you further down.

Much of it can already be understood from the name. It's the right to use older versions of the same product of the same class.

For example: having bought MS Office 2010 Standard, you can use MS Office 2007 Standard, MS Office 2003 Standard, and so on.

But since only the same class or lower is allowed, you cannot use the more expensive, even if older, Office 2007 Enterprise, 2003 Professional, and so on.

This right likewise doesn't give you the ability to use newer versions. It doesn't forbid it, but it doesn't grant it either - that's what the paid SA option is for.

What does it cost? Nothing! Downgrade rights are provided by Microsoft free of charge for all volume licenses (not boxes) by default! That's something many other vendors lack - we won't point fingers.



KMS. Nothing to do with sports.

"Box buyers"... yes, yes, hit skip again and fly on down the article.

KMS is an automatic activation service for Microsoft products purchased under the volume licensing scheme. It's meant to ease the deployment and activation of MS systems and programs, such as Windows, Windows Server, Office, and so on.

How does it work? Without going into technical details (that's off-topic here), KMS is installed on one computer on the network (it can be Windows, or Windows Server if the KMS key is meant for Windows Server), gets activated over the internet against a Microsoft server, and then itself becomes an activation server operating within your network and your Active Directory domain.

For clarity, here's an example. You purchased 30 licenses for Windows7. Microsoft gave you 2 kinds of keys for this: MAK and KMS. MAK is, in essence, an ordinary activation key with a fairly limited number of uses. KMS has an even smaller number of activations (only 2, if I remember correctly), but it's precisely this key that lets two of your computers be KMS servers.

So, you have 30 computers. We install Windows7 on one of them and activate it over the internet using the KMS key. Windows immediately warns you that this copy will become a KMS server.

After activation, this computer will not only become activated itself, but will also start running the KMS service. So you shouldn't carry out this procedure on a computer that gets turned on once a month, and even then only if you're lucky - the best fit is either the "sysadmin's" computer, or simply the computer that stays running as consistently as possible.

Now you install the 2nd, 3rd, and further copies of Windows 7. What are you asked during each install? For a product key. What should we answer? Nothing at all - we leave the product key field empty - this isn't a mistake, that's how it's supposed to be. Windows calmly continues installing and boots up.

And now the best part. By and large, you don't need to do anything at all for Windows to become activated - it will find the KMS server through the domain on its own and request activation from it. And it will become fully activated.

And moreover, the KMS server (as I understand from Microsoft's articles) doesn't check back with Microsoft's servers and doesn't send them information about how many copies of the programs are currently in use. This makes it very convenient to handle frequent hardware replacement, which requires reactivating the newly installed software. But the fact that no hardware or software is watching you doesn't give you the legal right to use a number of copies beyond the licenses you've purchased!

And now for the sad part. KMS has its own limitations too. Organizations that own a small number of computers won't be able to make use of such a convenient tool. The thing is, a KMS server only starts handing out licenses once it receives a sufficient number of requests from different computers.

For Windows Vista/7, this number is a whopping 25! That is, your organization must have at least 25 computers running Windows Vista/7 for KMS to even start working.
Having even 1000 Windows XP machines won't help - it specifically needs fresh versions of Windows.

So, if you've purchased Windows 7 and are gradually starting to migrate from XP to seven - that's where the "uh oh" is waiting for you. Because until you accumulate 25 computers with the OS reinstalled, KMS simply won't activate your genuinely licensed copies of Windows. And reinstalling 25 computers from XP to 7, especially ones cluttered with various narrowly specialized, tricky-to-activate software that isn't always immediately compatible with 7 - is no easy task for a small IT department staff. And this task won't get solved quickly.

For Windows Server, the vendor has set the bar at a minimum of 5 copies of the OS.



Windows XP/Vista/7... in short, desktop OSes and MS Office/Project...

The simplest thing is buying Windows for workstations. There aren't many options, they're not confusing, and everything happens easily.

You choose the version that suits you (volume licensing starts at Professional), order the required number of licenses, and you're all set. I've already covered the types of licensing and payment schemes.

No installation subtleties at all. You just install, activate or use KMS, and use it.



Windows Server

Here it's a little more complicated. I won't even give you all the information - just the essentials.

So, Windows Server is bought in the version you need, activated or done via KMS, and it all seems just dandy... but no, not quite.

If you look at price lists, you'll find several offerings worded roughly like this:

- Windows Server 2008 R2 Standard RUS NoCAL
- Windows Server 2008 R2 Standard RUS 5 CAL
- Windows Server 2008 R2 Standard RUS 25 CAL

What is this CAL thing?

The thing is, the vendor licenses Windows Server in two separate parts: a license for the operating system itself, and separately, the required number of licenses for connections to that operating system.

So, if you bought only Windows Server, without CALs, then... hmm, you can only use it as a workstation. No incoming network connections are allowed at all, PERIOD! It doesn't matter whether it's TCP/IP to a specific port, to Microsoft software or something else, over a "share" or any other way - none of it. In other words, you've bought an empty shell.

What you need is to also buy Client Access Licenses (CALs). Their number determines how many, and who, has the right to connect to this server (or these servers).

So, licensing Windows Server comes down to:

Windows Server + (n * CAL) = OK,
where n is the required number of client licenses.

But the difficulties don't end there. CALs are divided into 3 types:

1) Server CAL. These licenses are acquired per server. 1 Server CAL grants 1 (one) arbitrary computer the ability to connect to THIS server. In other words, these are concurrent-access licenses for the server. For example, if you bought 30 ServerCALs, then up to 30 ANY computers with ANY users can connect simultaneously to THIS server, the one you bought these licenses for. For another server, you'll need to buy ServerCALs separately.

2) Device CAL. These licenses are acquired for DEVICES. That is, for computers. A computer with a DeviceCAL assigned to it can connect to ANY Windows Server, with ANY user "on board," and it doesn't matter at all whether that server has any ServerCALs or not. That is, if a device (computer) has a DeviceCAL, no other CALs are needed at all. But the DeviceCAL will be tied specifically to that computer.

3) User CAL. The same as DeviceCAL, but for users. That is, it's acquired per user. So a user who has a UserCAL can connect from ANY computer to ANY Windows Server. Again, it doesn't matter whether that computer has a DeviceCAL or the server has a free ServerCAL.

In summary:
1) Server CAL - lets ANY user from ANY computer connect to ONLY THIS ONE server.
2) Device CAL - lets ANY user from ONLY THIS ONE computer connect to ANY server.
3) User CAL - lets ONLY THIS ONE user from ANY COMPUTER connect to ANY server.

It should be noted that there's no requirement for a minimum quantity of any particular CAL type: you can use only DeviceCALs without ServerCALs and without UserCALs, or only ServerCALs on every server, and so on.

The most advantageous option depends on the specific organization. Let me give three examples to illustrate.

1) For example, an organization with relatively few employees, but who constantly access servers from a large number of computers: from their own workstations, from presentation laptops, from home machines, from guest computers in hotels, from temporary computers, and so on. So the number of users is smaller than the number of computers they work from. Here UserCAL is more advantageous.

2) Another example. A small number of computers, many users, for example working in shifts. No connections from home or other computers. So the number of users is greater than the number of computers. Here DeviceCAL is more advantageous.

3) An organization has tons of users, tons of computers, but only a couple of servers. Little is clear about users and devices, but it's clear that they never all hit the servers at once, simultaneously. For example, the administrator understands that no more than 30-50% of all users/machines are ever on the server at the same time. In that case, it's worth considering Server CAL - and not worrying about which users from which machines will be connecting to the servers.


So, that's roughly how it works.

Let's sum up:
1) Windows Server is licensed as two component parts: the operating system itself and the client access licenses (CAL) for it.
2) Windows Server without CALs is an empty shell.
3) There are 3 types of CAL: ServerCAL, and its two counterparts UserCAL and DeviceCAL. And when licensing, you need to choose the more optimal option for yourself.

PS. The CAL count in labels like "Windows Server 2008 R2 Standard RUS 5 CALs" refers to Server CALs "bundled" right into the package.



Terminal server, or RDP server

One fairly common use of Windows Server is as a terminal server. I won't explain what it is or how it works - we're covering licensing here. But it's worth explaining how to license it.

So, we have Windows Server and we want to turn it into a terminal server. What do we need to buy additionally? We need client access licenses for terminal access. The so-called Terminal CALs.

What kinds are there? Deja vu:

1) TermDeviceCAL - a terminal license for a device. Allows connecting from THIS computer to ANY terminal server as ANY user.
2) TermUserCAL - a terminal license for a user. Allows connecting from ANY computer to ANY terminal server as THIS user.

Oops. Did we forget TermServerCAL? No, we didn't forget it, it just doesn't exist. For terminal servers there are only 2 types of client licenses. And in essence they mirror the plain DeviceCAL and UserCAL.

Now here's an IMPORTANT point! To set up a terminal server, you need:
a) A license for Windows Server itself
b) Terminal CAL licenses
c) And, ATTENTION! User/Device/ServerCAL licenses in a quantity no less than the number of Terminal CALs!

That is, Microsoft wants us to have a regular client access license for every single terminal license as well! This means we can't have 30 Terminal CALs and 10 UserCALs, for example. In that case, only 10 users will be able to connect.

Well, that's all there is about terminal servers.



Microsoft SQL Server

The next candidate up for clarification.

There are two types of licensing for MSSQL: per-CAL and per-processor.

1) Per-CAL. Our familiar CAL concept shows up here too. With per-CAL licensing, we need to acquire both a license for Microsoft SQL Server itself and a sufficient number of CALs. Each CAL is one concurrent connection to the database server. So, however many CALs you have, that's how many simultaneous connections SQL Server can hold.

2) Per-processor. With this licensing type, we only need to buy a license for MS SQL Server per processor(s). A wildly expensive license, by the way. This option lets you set up a server with an unlimited number of simultaneous connections. No CALs are needed here at all.

How are processors counted in "per-processor" licenses?

By "processor," Microsoft means not a "core," but a physical processor specifically, no matter how many cores it has. So, we count sockets. For example, on a dual-processor Intel Xeon server, with two installed processors and 8 cores total, you'll need to acquire 2 "per-processor" licenses.

How are processors counted in virtual machines?

The same way. That is, if we have a virtual machine on a 2-processor, 8-core server, and we need to allocate it 1 socket in order to comply with the license agreement, we allocate no more than 4 cores (8 cores total / 2 processors) and off you go!


Mirrors - free of charge.

At the moment, there's a rather pleasant feature for the Standard and Enterprise editions of SQL Server (and their kin): a free mirror. What this means: you buy 1 SQL Server license package and install it. On one server. And on another server (which must, nonetheless, have a Windows Server + CAL license), you install one more copy of SQL Server. But the trick is that you can only use the second copy in Read-only mode, and only as a mirror of the databases running on the primary server copy. If the first server fails, your backup turns into a read-write server and continues serving clients.

You don't need to pay for the second SQL server for this!


OEM - dies together

The idea behind OEM is always the same - software preinstalled on a computer. It's not even a box, it's worse. If the computer dies, then all the OEM software on it dies too. And it doesn't matter that you only replaced the motherboard while everything else stayed the same - the computer is already "not the same one".

OEM is cheaper, but you lose any ability whatsoever to transfer the license from a dead computer anywhere at all!

You officially cannot buy OEM for a computer that already exists. Microsoft sells OEM only to system builders, and only for installation on new computers - there are no other options.

Proof of an OEM license's validity is the invoice listing this software as part of the computer - on that very same invoice! It's unpleasant when you buy the hardware, say, with VAT, but the software without it, because then they're already separate invoices. And then you'll have to explain and prove things.



But what about free stuff?

Besides Microsoft's paid products (whose prices, to put it mildly, don't just bite - they devour the budgets of Russian companies, unlike foreign firms), free ones are also available.

Here you need to understand - there's no such thing as something completely free that's "just the same." Take a free product - be ready for limitations. Sometimes serious ones (MS SQL Server Express), sometimes not so serious (MS Search Server).

I recommend carefully studying the capabilities of MS's free software: quite often you can easily fit within the limits Microsoft sets up for its free versions. Sometimes you can't... well, then think about optimizing. If that doesn't work out, then go and pick a paid product for yourself.

Some things you won't be able to get for free. For example, the Windows operating systems or Office suites. They're paid only. Moreover, if you have a network with a domain, the "cheap" Home Edition won't be enough for you - you'll have to buy only the pricier Professional.

It's also worth understanding that Microsoft is no fool and puts up obstacles for those who like to use desktop OS versions for server needs. For instance, MS SQL Server Standard (not Express) simply won't install on non-Server Windows. And you can't turn Windows 7 into a shared-folder ("share") server - there won't be enough simultaneous connections.



Conclusion

Of course, I haven't explained every product in this article. I haven't covered some of the "tricks" and "quirks" of licensing, but the goal of the article was to bring you up to speed. Especially since Microsoft is constantly running various promotions, changing licensing "quirks" and details, and so on, which is why I've laid out a "skeleton" here that you can already work with when choosing one licensing type or another.

I deliberately chose not to cover many products, such as System Center and Exchange Server. I chose not to cover Enterprise licensing and the Enterprise CAL (4-in-1). Using this skeleton, you can "stretch" your understanding onto the other products - how they need to be bought. Moreover, I strongly recommend that before buying, you ask your account manager about the chosen products and how you're planning to buy them - the manager will surely help you.