How to: License Microsoft Windows Server in a VMware environment – Part 1

Last week I had another nice discussion around the 90 day assignment rule for Windows Server licensing on a VMware environment.  To answer this shortly: You may move running instances between licensed servers without acquiring additional licenses. However you cannot exceed the maximum number of instances each server is licensed to run.

Microsoft Operating System Environments (OSE)

Microsoft defines Operating System Environments for allocating licenses. This is a nice and flexible way to accommodate customer demand.  To understand how licensing works under virtualization, it is important to understand how Microsoft defines an OSE.

An “operating system environment” is:

1 all or part of an operating system instance, or all or part of a virtual (or otherwise emulated) operating system instance which enables separate machine identity (primary computer name or similar unique identifier) or separate administrative rights, and

2 instances of applications, if any, configured to run on the operating system instance or parts identified above.

Microsoft makes a distinction between physical and virtual.  A physical operating system environment is configured to run directly on a physical hardware system. The operating system instance used to run hardware virtualization software (for example, VMware) or to provide hardware virtualization services (for example, VMware) is considered part of the physical operating system environment. A virtual operating system environment is configured to run on a virtual (or otherwise emulated) hardware system. A physical hardware system can have either or both of the following:

  • one physical operating system environment and one or more virtual operating system environments

When running Windows on a VMware environment you will have multiple virtual OSE’s running on top off for instance VMware ESX.

The breakeven point of licensing VMs

Windows 2008 comes in several products and licensing opportunities.

Product Maximum permitted running virtual instances Price
Windows Server 2008 Standard (+10 CALs)


$ 1.209,-

Windows Server 2008 Enterprise (+25 CALs)


$ 3.999,-

Windows Server 2008 Datacenter (no CALs)


(1 Processor)
€ 2.999,-

A CAL is roughly about  $ 40,- (All retail prices) For keeping this simple I won’t take the CALs into account and will blog about it in a blog post later on.

When comparing the above licenses, when implementing a VMware virtual environment with servers containing 2 Quad core processors (or higher, more core density) it is best to use Datacenter licenses if it is mostly a Microsoft infrastructure running.

4 * 1.209,- = $ 4.836,-

2 * 3.999,- = $ 7.998,-

2p * 2.999, = $ 5.999,-

We found that 7 VMs is the breakeven point to switch to Datacenter edition licensing. If the virtual environment is going to run more than 7 virtual machines on top of an ESX server, Datacenter licensing is the way to go.

Some real life cases

We use Microsoft Enterprise licensing for ESXi servers running 4 virtual XenApp servers and we use Microsoft Datacenter licensing for most of the environments we have build. Often running with 16 or more Virtual Machines on top of an ESX server, makes the licensing cost per virtual machine 4.510,- / 16 = 282,-

Things you should know about Datacenter licensing

  • Servers with Windows Server Standard or Enterprise licenses covered by Software Assurance can be “stepped up” to a Windows Server Datacenter Edition processor license to take advantage of its unlimited virtualization rights.
  • The 64-bit version of Datacenter Edition can be licensed for 128-way systems, with each partition capable of supporting a maximum of 64 processors.
  • You may not run instances of Datacenter on a server with less than two processors.

Note that partitioning of a Datacenter system is supported logically at a licensing level and physical level. In other words, you are not required to obtain more Datacenter Edition server licenses than the total number of processors on that server (2 processor minimum).

Licensing for Peak Capacity

An ESX server running virtual OSE’s must have assigned licenses equal to or exceeding the number of running instances. You need to be aware and look sharp on the peak capacity running on the ESX server, with HA and DRS check how many instances could be running/landing on an ESX server. For instances a VMware cluster of 3 ESX servers all running 8 virtual OSE’s in normal production, will run 12 virtual instances on 2 ESX servers when in maintenance mode or when a HA failure is detected. So every ESX server must have 12 Windows 2008 Standard licenses assigned or 3 Windows 2008 Enterprise server licenses or must have 2 Windows 2008 Datacenter licenses assigned.

Myths and Answers

There is a lot of Fear Uncertainty and Doubt (FUD) out in the field around the whole licensing Microsoft Products on a VMware environment. So will bust the most common myths out there.

Myth: You may not move a virtual Windows server from 1 ESX server to another ESX server within 90 days.

Answer: From page 10 of the Licensing Brief Microsoft Windows Server 2008 to Run with Virtualization Technologies is the following quote:

‘For Windows Server software, except in a few cases (see “Assignment of Licenses” above), licenses may only be reassigned to new hardware after 90 days. This, however, does not restrict the dynamic movement of virtual OSEs between licensed servers. As long as the servers are licensed and do not simultaneously run more instances than the number for which they are licensed, you are free to use VMotion and System Center Virtual Machine Manager to move virtualized instances between licensed servers at will’

Myth: You do have to license every template and non-running virtual machines stored on the SAN.

Answer: You only need to license the servers running the workload, so not templates standby servers or disaster recovery machines on an other site. As long as they don’t run any load.

If a server is licensed, then stored or non-running instances of Windows Server and other Microsoft servers do not require separate licenses. The use rights permit you to store any number of instances under each license. You can also store instances on a large storage area network (SAN) or store instances on your servers without needing additional licenses for each instance. (See also page 2 of the Licensing Brief Microsoft Windows Server 2008 to Run with Virtualization Technologies)

Myth: I cannot run Windows 2003 anymore or I need to acquire special licensing to run Windows 2003/8 standard edition.

Answer: In place of the licensed version, you may run prior versions or lower editions in any of the OSEs of the licensed server. For example, if you have a server licensed for Windows Server 2008 Enterprise, you may run instances of Windows Server 2008 Standard or Windows Server 2003 R2 Enterprise Edition or Windows Server 2003 R2 Standard Edition in any of the allowed five instances on the server. As an extension of the above rights, you may also run prior versions of lower editions. You may not run more instances on the server than your licenses allow. (See also page 4 of the Licensing Brief Microsoft Windows Server 2008 to Run with Virtualization Technologies)


I must say the last year Microsoft went from the bad boy on the block of virtual environments to the good guys, helping their customers out with redesigning licensing around their products for virtual environments. Next to come is the VECD licensing that will be shifted into SA or you can buy a special Windows Virtual Desktop Access (Windows VDA) costing $100 per year per device and aimed at organizations who are using endpoints that do not have a Windows SA license.

  • As long as the servers are licensed and do not simultaneously run more instances than the number for which they are licensed, you are free to use VMotion to move virtualized instances between licensed servers at will.
  • You are allowed and may downgrade to a prior version like for example Windows 2003 if needed.

You won’t have any problems with the 90 day reassignment rule of Windows licenses, if you make sure you have the proper licensing in place for the physical VMware boxes.

Links and Sources

Good source of information regarding the subject are the Microsoft Licensing Briefs you can find here:


Continue the sequel here: How to: License Microsoft Windows Server in a VMware environment – Part 2


Edwin Weijdema works as an Enterprise Architect at Imtech ICT in the Netherlands. His job is to build bridges between management and the technicians and vice verse. He has many different roles including working as a speaker, trainer, writer, pre-sales consultant, enterprise architect as well as providing risk analysis and responding to concerns and questions posed by his clients. Edwin is a certified VMware VCP 2, 3, 4 & 5, and V(T)SP 3, 4 & 5. In 2010, 2011, 2012, 2013 and 2014 VMware awarded him the VMware vExpert award for blogging and community efforts. In his spare time he likes to relax in a good online game with friends.

  • Edwin

    I found the retail prices for Windows 2008 editions without CALs combined to it:

    Prices are for US but good to compare and see where the break even point is situated.
    Standard edition: $726,-
    Enterprise edition: $2.358,-
    Datacenter edition: $ 2.405,-

    Using these numbers the break even point will be @ 8 virtual machines and above on a 2 cpu socket machine.


  • Eric K. Miller

    Unfortunately, for service providers trying to use their SPLA licenses, there are enough restrictions to make someone go bonkers. For instance, Microsoft says that SPLA licenses can't be used in conjunction with volume licenses, retail licenses, etc. So, customers who are transitioning from an on-premise environment to a hosted environment (the majority of companies are doing this slowly) must use “only” SPLA licenses “or” volume licenses or retail licenses at the hosted site. To gain the benefit of the hosted environment, most companies would prefer to use SPLA licensing for “new” software, but would still like to use some of their existing expensive volume or retail licenses during a slow transition to a hosted environment. Why should these volume or retail licenses be thrown away?

    So, as much as Microsoft has assisted in providing numerous licensing options for virtual environments (much appreciated), they have continued to create barriers like this for a large part of the market.

  • Pingback: Unlimited virtualization rights price breakeven point for Windows Server | Servers and Storage |

  • sulaiman

    How Microsoft windows 7 licensing system is working in VMware
    view 4.6 environment.

    For example, an organization is going to use 100 VM desktop
    with VMware 4.6. it will be useful if you can tell how many windows 7 license
    the organization need to buy.

    Please help me on this case I am bit confuse on the same

    • Edwin

      Hi Sulaiman,

      Good question, I am compiling a blog post which will be live within the next couple of days which will shine a light on this subject how to calculate and which licenses to use from Microsoft in a VMware View 4.6 deployment. I hope you have the time to wait on this post because it is a complex whole with devices and virtual machines.

  • Santhosh C

    Thanks a lot for the post. But could please tell this too. How i assign a Windows server license in a ESXi host.  Is there any interface to apply the license or through what mode ??

    Please advise.

    • Erik Scholten

      Assign a Windows server license in an ESXi host? You can only assign a license to a Windows host inside the Windows operating system or with the use of a KMS server. The only Windows license related action you can perform in an ESXI host is assign a Windows license to a template or a customization specification.

    • Neil G

      You don’t physically apply the Windows licence to an ESXi host, it is a logical assignment for licensing purposes.  If you have an ESXi server with 2 processors you would just allocate 1 Windows Server Enterprise licence (per 4 virtual machines that will run on it) or 2 Windows Server Datacenter licences (to allow unlimited VMs to run).  You’re not running a base copy of Windows on the host itself like you do with Hyper-V and so don’t have to enter a licence key anywhere; just keep a record of the licences you’ve allocated.  Obviously you still need to enter a licence key when activating Windows within the guest VM.

      • Santhosh C

         Thanks a lot, a lot Neil G !!!!

        This absolutely clarified my doubt  !!
        So i just need to file and keep the license key with me in a ESXi environment and run VMs as if it is a Hyper-V environment ! Great..

        Thanks again.

        • Neil G

          Yes, if Microsoft come knocking you just need to be able to show that you have bought the appropriate licences for your ESXi servers to cover all the VMs they will run.  There is nothing technical within ESXi that prevents you from running more Windows VMs than you are licensed for, it’s all done on a trust basis.

          • Santhosh C

             This absolutely great !!
            Thanks Niel again.
            One more doubt. Is there any restriction that i can run only lower version of Windows in the VMs ?? For example, if i license my ESXi server with 2008R2 Enterprise, I can run four 2008R2 enterprise VMs in it right ? Or am I saying something wrong ??!!

          • Neil G

            You do get downgrade rights, so If you assign a single Windows Server 2008R2 Enterprise licence to the ESXi server then it is entitled to host four VMs using either Enterprise or Standard edition of Windows (or a mixture).  They don’t have to be 2008R2 either you could run 2008, 2003R2 or 2003.
            If you allocated two Datacenter licences to the ESXi server then it could run unlimited VMs on any current version of Windows Server.  You would only be able to run future versions, such as Windows 8 server, if the licences have Software Assurance.
            If you downgrade, you will of course need to use the licence key relevant to the version you are installing in the VM:

  • Mg

    When I have 2 ESXi running on 2 server(each one with 2 CPU six core) which is the number Windows Datacenter licensing that I have to buy?, Over this scenario the answer is 4 or not?
    Thanks for you help

    • Neil G

      Yes 4 (2 for each server).  Enterprise is licensed per server, Datacenter per processor.  The number of cores in each processor doesn’t matter for Windows Server licensing.