A guide to Microsoft Licensing types

While everyone knows that you need to have a legitimate license to use a Microsoft product at home or at work, licensing from a business point of view is extremely complex. Even the licensing options available to retail products is adding a level of complexity that the regular home user would seldom need. With that in mind, I wanted to put together a guide to licensing for the Microsoft product family, to give users new to the concepts an overview of what to expect.

Recently, I’ve been involved in a Microsoft audit. It’s been an interesting experience, one I had never been privy to until now. The auditor used to work for Microsoft, but moved to the company’s he with now, his sole role to audit Microsoft customers to ensure compliance with the companies licensing agreements. I’ve had great dealings with him and learnt so much in such a short space of time, which I will get into later, but to quote my new friend:

Once you start getting into OEMs, SA, VL and license agreements, Microsoft licensing becomes a very dark art.

He isn’t wrong. I’ve been ignorant in the past, thinking that when you buy a product like Windows, Windows Server, Exchange, SQL, etc. you own it and can use it. Not quite. You may own the products and in some cases, like with Windows Server OS’, get given a number of complimentary CALs when you purchase the software in the stores. It’s these CALs that dictate how many people can then use these products in your environment. But let’s keep things simple for now.

Full Packaged Product (FPP) or Retail licenses

These are the simplest license Microsoft offer, to a point at least. The idea behind FPP (more commonly referred to as retail) licenses is that you walk into a store or buy the software online and that’s it. You own it, yours forever and a day. Windows and Office are the ones that at some point you may have bought. You can install/uninstall/reinstall the software as much as you like, as long as it’s only installed on one device at any one time.

Some additional allowances with Office FPP licenses may allow you to install the same copy on a portable device (laptop or tablet) for use by the primary license owner; in other words, the person who bought and installed the license on the first desktop computer.

Windows Server works in the same way; buy the license and use it on as many different pieces of server hardware as you like, as long as it’s one product key per one piece of tin. But retail Windows Server licenses will also come with five “free” client access licenses (CALs, which I will cover shortly) that allow five users or devices to connect to that Server instance at any one time. A CAL is the right to make authenticated connections to server(s). This is when licensing starts to get complicated.

OEM Licenses

If you buy a PC or laptop from PC World, Best Buy, or direct from Dell or HP, you will almost certainly get a Windows OS installed on it. You might even get Office as well, depending on the Original Equipment Manufacturer (OEM) you choose. These licenses are known as OEM licenses with their cost bundled in with the final price of the computer you buy. They are usually slightly cheaper than buying FPP licenses.

So, what’s the difference between Retail and OEM licenses? You’re buying the software and you own it, so you would think that it’s yours to use how you like. Nope! An OEM license lives and dies with the PC it was bought with or first installed on. So Windows, Office and Windows Server are all tied to the system and its hardware configuration; it’s classed as non-transferable. However, it is possible to upgrade and replace components in the system, except the motherboard. The motherboard can only be replaced, and no new license required, if it’s faulty. And you will have to get the same motherboard from the OEM to maintain license validity.

You are entitled to downgrade the OS to a previous version (versions being Vista, 7 and 8) to a product that preceded it. However, you must downgrade to the same edition (editions being Home, Professional, Enterprise, etc.). So Windows 8 Pro can be downgraded to Windows XP Pro, Windows 7 Enterprise can be downgraded to Windows XP Pro as it’s the most suitable and version in the XP editions; only Home and Professional versions of XP were released. Applications cannot be downgraded.

You can, when buying an OEM server license, purchase CALs with that server license. But as CALs aren’t tied to a server license, you only need to ensure that you have enough CALs for users and/or devices for the correct version (being 2003, 2008, 2012, etc.) of the server OS they are using. I’ll cover CALs, in more detail, in part two.

Volume Licensing

This is where businesses and organizations come into play. Most companies that require the purchase of Microsoft software in bulk, or require more options, manageability and flexibility, will generally use Volume licensing. Like FPP and OEM, the licenses never expire, but Microsoft also offer a subscription option. This option will expire and the licenses tied to it become invalid, unless the subscription is renewed.

You have to make an initial purchase - a minimum - of five licenses, but they can be split across the entire suite of products Microsoft offer. A Windows Server 2012 license, two Windows 8 licenses and two Office 2013 licenses and you’re there. You can then buy additional licenses in whatever number you need, once the initial five-or-more agreement is in place.

Much like OEM licensing, you can downgrade the software to the previous version, same edition. However, now you have the ability to downgrade applications like Office to their previous version, same edition.
Portable use rights are extended to Volume licensing as well. Have you a user with a desktop and laptop? Use the same license on both devices at no additional cost! FPP does offer this, but its availability is limited and will depend largely on the piece of software.

You can transfer license between machines now too! If you have a SQL Server that dies, build or purchase a new server and transfer that SQL Server license to the new server.

Finally, like OEM licensing, Volume licensing is cheaper than FPP as you’re only getting the media, and not a packaged product.

I’ve put together a short table that give you the ins and outs of the three license types.

 

Downgradeable

Transferable

Portable

 

OS

Apps

Server Apps

OS

Apps

Server Apps

OS

Apps

Server Apps

OEM

Yes

No

Yes*

No

No

No

No

No

No

FPP

No

No

No

Yes

Yes

Yes

No

Yes*

No

VL

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

* Whether this is possible depends on the license usage rights of the individual applications

This is a very broad overview of the features of each license type. While this may seem simple, once Volume licensing and, to a point, OEM licensing is in play, Microsoft can add CALs and Software Assurance into the mix that can start to really confuse matters.

In part two of our guide, we’ll look at Software Assurance, Client Access Licenses, along with multiplexing and virtual environment licensing.

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22 Comments

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@ the author

Actually the OEM license despite M$'s routine attempts to lie about such restrictions are not enforceable period. You can legally change any/all of the hardware in an OEM system including upgrading the MB. Of course M$ still desperately tries to deny this for their own benefit but it has been proven multiple times including in court. Instead of simply reiterating the crap from M$ about such "limits" you should actually do some research into the actual legality of their claims.

In addition any VLK system that is post original owner sold as used can carry the installed version legally w/o added restrictions the same as a retail version. Again something M$ wants to hide.

So in effect anyone whom has an old XP "sticker" it can legally be removed from the computer and added to a brand new system. Despite M$'s claims to the contrary.

This article isn't entirely correct. For instance the listing for OEM licensing is totally off-base. The licenses can be transferred as long as very specific requirements are met.

In the case of Windows 8 those requirements almost go entirely out the Window with the Personal Use License for the System Builder copies. There's still a few restrictions...but pretty much what already existed for FPP sold at retail.

Try understanding Partner Licensing. I'm required to upgrade to the latest version of Windows/Office etc within 6 months of release. At the same time, I'm entitled to DataCenter editions of Windows ... which include in their license the rights to run them as Hyper-V hosts with any edition or version of Windows inside the Hyper-V. See a contradiction there?!

jamieakers said,
Try understanding Partner Licensing. I'm required to upgrade to the latest version of Windows/Office etc within 6 months of release. At the same time, I'm entitled to DataCenter editions of Windows ... which include in their license the rights to run them as Hyper-V hosts with any edition or version of Windows inside the Hyper-V. See a contradiction there?!

To be frank, it's a bit of a con. I found this out while going through the licensing audit. If you have an ESX host (just one) you only need to ensure that the VMs hosted are licensed and CALed appropriately.
But add another host in and create a cluster/farm (whatever term you want to use), enable vMotion for high availability (HA) and you need to apply a datacentre license to each host to allow the VMs to transfer between both hosts dynamically. They are essentially double charging you; although more if you consider that one datacentre license is £5000 (or there abouts).
It's looked at that the underlying hardware of the VM is changing, thus, depending on your licenses applied to the VMs, you need to be able to have the underlying hardware be changed whenever vMotion kicks in for a VM. But is the spec/components of the VM always going to stay the same, so even though the hardware changes (and yes, the hardware changes even if the hosts are identically specced), the VM specs do not.
Now, you can get away without getting a datacentre license for each virtual host, but you need to disable all HA features on each host and only move the VMs manually between the two or more hosts once every 90 days.
I am making the broad assumption that VMware and Microsoft are the same for their VCE licensing terms. Hyper-V aint all that different to ESX or vCloud, both provide the same functionality/experience.
Bloody hell!

OEM/System Builder licensing changed with Windows 8. The licenses are now transferable among machines more easily.

Even then on prior OS releases OEM licenses could be transferred between computers by the manufacturer if the reason was due to hardware failure (not upgrade). If you build your own computer and get an OEM license you are ,by license definition, your own OEM and therefore can use that clause to transfer the license to a new motherboard if the old one failed for some reason. There is a slight catch to that though. For the transfer to take the board must be functionally similar to the old one. http://www.microsoft.com/OEM/e...ges/licensing_faq.aspx#faq1 "Can a PC with an OEM Windows operating system have its motherboard upgraded and keep the same license? What if it was replaced because it was defective?"

For information regarding the OEM/System Builder licensing on Windows 8 see the "Personal Use License" section on the Licensing FAQ at Microsoft.
http://www.microsoft.com/OEM/e...ges/licensing_faq.aspx#faq2

shinji257 said,
OEM/System Builder licensing changed with Windows 8. The licenses are now transferable among machines more easily.

Even then on prior OS releases OEM licenses could be transferred between computers by the manufacturer if the reason was due to hardware failure (not upgrade). If you build your own computer and get an OEM license you are ,by license definition, your own OEM and therefore can use that clause to transfer the license to a new motherboard if the old one failed for some reason. There is a slight catch to that though. For the transfer to take the board must be functionally similar to the old one. http://www.microsoft.com/OEM/e...ges/licensing_faq.aspx#faq1 "Can a PC with an OEM Windows operating system have its motherboard upgraded and keep the same license? What if it was replaced because it was defective?"

For information regarding the OEM/System Builder licensing on Windows 8 see the "Personal Use License" section on the Licensing FAQ at Microsoft.
http://www.microsoft.com/OEM/e...ges/licensing_faq.aspx#faq2


Yeah, I read that too. It's a nice addition, but there is still the justification of the OEM (ie the system build, you) to justify the new motherboard to Microsoft. If they deem you're outside of the scope, you're snookered, you need to pay up for the correct (or new) license.
The stand I've seen them taken with software that was installed, and not licensed is "okay, prove to us that it was never used and then we'll consider your punishment." A touch harsh maybe, but only fair I guess. Definitely can't plead ignorance on this one, lol

yeoo_andy_ni said,

Yeah, I read that too. It's a nice addition, but there is still the justification of the OEM (ie the system build, you) to justify the new motherboard to Microsoft. If they deem you're outside of the scope, you're snookered, you need to pay up for the correct (or new) license.
The stand I've seen them taken with software that was installed, and not licensed is "okay, prove to us that it was never used and then we'll consider your punishment." A touch harsh maybe, but only fair I guess. Definitely can't plead ignorance on this one, lol

Well the Windows 8 bit is still relaxed. 4th question for the relevant section.


Q. What happens if I build a PC with a Personal Use License, then later decide to sell it?

A. You may transfer the software to another computer that belongs to you. You may also transfer the software (together with the license) to a computer owned by someone else if a) you are the first licensed user of the software and b) the new user agrees to the terms of this agreement. To make that transfer, you must transfer the original media, the certificate of authenticity, the product key and the proof of purchase directly to that other person, without retaining any copies of the software. You may use the backup copy we allow you to make or the media that the software came on to transfer the software. Anytime you transfer the software to a new computer, you must remove the software from the prior computer. You may not transfer the software to share licenses between computers. You may transfer Get Genuine Windows software, Pro Pack or Media Center Pack software only together with the licensed computer.

Windows 7/8 Enterprise do not carry transfer rights to another machine. You can't reinstall Windows 8 Enterprise on another machine if the machine the license is currently installed on dies. You basically would have to purchase a new machine or ensure that you have Software Assurance.

Mr. Dee said,
Windows 7/8 Enterprise do not carry transfer rights to another machine. You can't reinstall Windows 8 Enterprise on another machine if the machine the license is currently installed on dies. You basically would have to purchase a new machine or ensure that you have Software Assurance.

But the Enterprise editions of the OS' are only available to VL customers who have Software Assurance. This then means that if a company with 100 PCs all running Windows 7 and 8 have a massive fire with hardware and software losses, Microsoft are going to require them, even though they have a VL Agreement with SA, to purchase all new licenses?
Even under their strictest terms this could easily be classed as a consession and be allowed. I know licensing is contradictory, but I can't see how giving the customer the benefits of SA and VL, but taking it away for Windows 7 and 8 Enterprise edition makes any sense.
Have you a link to the official Microsoft documentation or blurb so I can see it, as this is the first I've heard of this to be honest!

A guide to Microsoft licensing is going to need to be more than just 2 parts. lol
Only licensing scheme MORE complicated is Adobe.

ahhell said,
A guide to Microsoft licensing is going to need to be more than just 2 parts. lol
Only licensing scheme MORE complicated is Adobe.

Oh don't count out Oracle.

ahhell said,
A guide to Microsoft licensing is going to need to be more than just 2 parts. lol
Only licensing scheme MORE complicated is Adobe.

I like the fact that you obviously read the article from start to finish; you should have read " give users new to the concepts an overview of what to expect" and "This is a very broad overview of the features of each license type."
I didn't want to do a really granular guide on the finer points of MS licensing, just a skim over the top to give someone who wants to start learning a starting point on move one from.
But I completely agree with you, 2 parts is nowhere near enough for a full, detailed guide. How many parts could it be? How many can you physically write before your fingers are worn down to bleeding nubs on the keyboard!

Kalint said,

Oracle... I shutter at the name.

Pfft I can beat both Oracle & Adobes licencing, try understanding what licencing you need for a cluster of Lotus Domino Servers, assoc CALS and CPU Seat licencing (not to mention 150 Notes endpoints!)....4 times Ive contacted IBM to clarify and ive received 4 different answers!

At least with SharePoint 2013, you have some PowerShell cmdlets to enable/disable/check on Standard vs. Enterprise CALS. This makes it so much easier to assign licenses to AD groups so that you can enable Enterprise features on a site for people that need them and if a Standard user wanders in, they are told they are not licensed. FINALLY!!!!!

I hate MS licensing... we were eOpen then something else for a while then who knows what now... anyways... we were always told by our vendor what we needed, then a MS licensing rep verified it before we bought the licenses....

we got audited this past year and MS told us we were completely wrong.... which was well great considering we had two people verify it... one being a MICROSOFT LICESEING person at Microsoft!

long story short they tried to fine us $175,000 for wrong licenses.... the vendor covered it in the end since it was "their mistake"... well why didn't the Microsoft licensing person catch it at the time of sale?!

neufuse said,
I hate MS licensing... we were eOpen then something else for a while then who knows what now... anyways... we were always told by our vendor what we needed, then a MS licensing rep verified it before we bought the licenses....

we got audited this past year and MS told us we were completely wrong.... which was well great considering we had two people verify it... one being a MICROSOFT LICESEING person at Microsoft!

long story short they tried to fine us $175,000 for wrong licenses.... the vendor covered it in the end since it was "their mistake"... well why didn't the Microsoft licensing person catch it at the time of sale?!


Exactly the same situation I'm seeing with this licensing audit, Not just as much as 175k, and not a "fine" but just the cost it would be to make everything compliant.

As far as I know only OEM pro and higher have downgrade rights.
Home versions and lower have no downgrade rights.

Romtec said,
As far as I know only OEM pro and higher have downgrade rights.
Home versions and lower have no downgrade rights.

That's correct.

Romtec said,
As far as I know only OEM pro and higher have downgrade rights.
Home versions and lower have no downgrade rights.

Yep, you're on the money. Totally forgot to mention that. My bad.

As a school we are under a VL subscription for Office. What's great is while we have 600+ computers we only have around 150 teachers/staff. So instead of paying for 600+ computers we only pay for the 150 staff and can install Office on as many computers as we need. Works out well for us.