So, grasshopper, you have decided to take the plunge and virtualize your server infrastructure. Someone (perhaps us) explained the business benefits of virtualization, you decided that it made sense, and that it’s time to make the move. But do you know how virtualization will affect your Windows Server licensing model?

The first thing you need to know is that Windows Server licenses are assigned to physical hardware, not to server workloads. When you purchase a license, you must “assign” that license to a physical server. How do you do that? Well, in today’s world, there is no formal process for doing that, although if it makes you feel better, you can write it down somewhere.

You may assign more than one license to a physical server, but you may not assign the same license to more than one physical server. You may reassign a license from one physical server to another, but not more frequently than every 90 days, unless the server it was assigned to is being retired due to “permanent hardware failure.”

Sound reasonable so far? Of course it does. Right up until the license model runs head-on into one of the coolest features of virtualization: live motion. Most virtualization platforms, including Microsoft’s Hyper-V R2, allow you to easily move a virtual server from one physical host to another. Great feature, right? But if you do it, you may have just violated your Windows license agreement.

I say “may” because different versions of Windows Server come with different virtualization rights. For example, a Windows Server Standard license can be used to run one physical instance of Windows (and by “physical instance,” I mean Windows is installed directly on the hardware) or one virtual instance of Windows, but not both – unless the physical instance is being used solely to manage the virtual environment.

Let me say that another way: If you buy a single license for Windows Server Standard Edition with Hyper-V, you can install it directly on the hardware without bothering with the Hyper-V role. Or you can install the Hyper-V role, have one virtual Windows Server running on top of Hyper-V, and use the physical instance exclusively to manage the virtual instance. Of course, you haven’t really gained anything by doing that…but you can purchase additional copies of Windows Server Standard, assign them to the same physical host, and run more virtual servers on Hyper-V.

Thinking this scenario through, then, if you currently have a bunch of physical Windows Servers – each licensed with Windows Standard Edition – and you want to virtualize them all, that’s no problem. You can reassign your server licenses to your virtual hosts and be perfectly legal. As long as you don’t move a server from one host to another. But if all you own are Standard Edition licenses, and you move a server from one host to another, you’ve just violated the license agreement – unless you own a “spare” server license that you have “assigned” to the target server (the host you’re moving it to) but that is not being used.

Now, in the scenario I just described, it’s possible that the most cost-effective thing you could do is to just buy a few additional licenses as “spares” rather than re-licensing your entire environment. But let’s move ahead – once we’ve covered the other Windows editions that are available to you, you’ll be better able to decide what makes financial sense for your project.

Windows Server Enterprise Edition comes with expanded virtualization rights. Each Enterprise Edition license gives you the rights to run one physical instance and up to four virtual instances on the physical host to which it is assigned. Once again, if you want to run all four virtual instances, then the physical instance may only be used to manage the virtual environment. If you want to run other services on the physical instance – and that’s actually fairly common in a Hyper-V deployment – then you only get to run three virtual instances. And you may not split the license across multiple physical hosts.

The “estimated retail price” (just the license, no Software Assurance, assuming Open Business pricing) for Windows Enterprise is $2,358, vs. $726 for Windows Standard. So Enterprise is less expensive than four copies of Standard. Therefore, if you need to buy new licenses (perhaps you’re upgrading from Server 2003 to Server 2008 as part of your virtualization project), it may make sense in a small environment to buy a copy of Enterprise Edition for each virtual host, and perhaps supplement it with a few spare copies of Standard Edition. Here’s an example:

Let’s say you have a total of nine physical servers today, and you want to virtualize them on three dual-processor virtualization hosts. (You could probably run them on two hosts, but if one failed, it might be a stretch to run all nine on one host. If you start with three hosts, and one fails, you still have two to carry the load.) You could buy nine new copies of Windows Standard Edition for $6,534, but you’d have no flexibility to use live motion to move things around. On the other hand, you could buy three copies of Enterprise Edition for your three hosts for $7,074, and effectively have one “spare” instance on each host that’s available for moving a virtual machine from one host to another.

Of course, that may not be quite enough if you want to completely unload one of your servers (perhaps to take it off-line for maintenance), because unless you’re prepared to shut down one VM completely, you’re going to need to run five VMs on one of your remaining servers. Since you may not know in advance which server needs to assume the extra VM workload, you could just buy three additional copies of Standard Edition, and assign one to each host. That would push your total license acquisition cost to $9,252, but you would then be licensed for five VMs on each of your hosts.

The ultimate in flexibility is Windows Server Datacenter Edition. Datacenter Edition is licensed per processor socket rather than per physical host, but includes unlimited virtualization rights. You can run as many VMs on your hosts as they’re capable of running, and move them around to your heart’s content. If you just don’t want to worry about what’s running where or whether or not it’s technically legal to move a given VM around, this is the license model to use.

Of course, this is also the most expensive edition of Windows. The estimated retail price for Datacenter Edition is $2,405 per processor socket (regardless of the number of cores per processor). So it would cost $14,430 to license three dual-processor servers with Datacenter Edition. This probably isn’t cost effective if you’re only virtualizing nine servers. However, if you have lots of servers, and many of them are fairly lightly loaded (in terms of processor utilization), the picture could change. If your average consolidation ratio is greater than or equal to four servers per physical processor then Datacenter Edition becomes the most cost-effective license.

In fact, if you’re even close to that 4:1 ratio, you should strongly consider Datacenter Edition, for two reasons:

1. Windows environments inevitably grow. However many servers you have today, you’re probably going to have more of them a year from now. With Datacenter Edition, you can continue to fire up new servers to the limits of your hardware without having to buy more server licenses.
2. AMD already has six-core processors. You know the “arms race” between Intel and AMD will continue. So the number of servers per processor that you can reasonably expect to support will continue to increase as the processors themselves become more powerful and contain more cores, and as this happens, Datacenter Edition will look better and better.

Note that everything we’ve discussed holds true if you’re virtualizing on XenServer or VMware rather than on Hyper-V. The only difference is that you won’t be using any of the allowed physical instances of Windows.

If you want to delve deeper into this issue, you can download a copy of the Microsoft Product Use Rights document from their Web site. Happy virtualizing!