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Microsoft has implemented a significant change in its licensing for Windows Server System products that are used in virtual machine environments.

New servers licensed with Windows Server 2003 R2 Datacenter Edition now have the license rights to run an unlimited number of virtualized Windows Server instances and can buy the product directly from Microsoft and reseller partners through Volume Licensing.

The change, which was effective Oct. 1, means that by licensing the server’s processors with Windows Server 2003 Datacenter Edition, users will be able to run Windows Server Standard Edition, Enterprise Edition, Datacenter Edition or a mix of the three editions without having to track the number of virtual machines or pay for additional Windows Server licenses, Microsoft said in a statement.

Microsoft first announced the move of its annual Worldwide Partner Conference in Boston earlier in 2006.

Before that, the company had said that licenses for Windows Server 2003 Datacenter Edition would allow customers to run as many as four virtual instances on one physical server at no additional cost and that it planned to only allow users the right to run an unlimited number of virtual instances on one physical server when the Datacenter Edition of Windows Server “Longhorn” shipped sometime in 2007.

Click here to read more about how Microsoft simplified Windows Server licensing in late 2005.

Microsoft partners like Mark Feverston, the vice president of Unisys’ enterprise server business, say they welcome the change to unlimited virtualization for Windows Server 2003 R2 Datacenter Edition licensing.

They say the move significantly enhances the value proposition for virtual machine deployment on scaleable Unisys ES7000/one servers.

“We expect this significant increase in customer value will accelerate the adoption of virtualization in enterprise data centers,” he said.

Al Gillen, an analyst at research firm IDC, said that the move offered the promise of more cost-effective use of Windows in highly virtualized environments.

Microsoft made its Virtual Server 2005 R2 Enterprise Edition product available as a free download in May 2006. Click here to read more.

In addition, OEMs will be able to sell Windows Server 2003 R2 Datacenter Edition pre-installed on servers with two to 64 processors, with or without the Datacenter High Availability Program.

“This new option provides highly reliable Datacenter solutions for mission critical applications on smaller servers,” a Microsoft spokesperson said.

Windows Server 2003 R2 Datacenter Edition supports x86/32-bit, x64/64-bit and IA64/64-bit platforms with 2 to 64 processors. The 64-bit versions support up to 1TB of RAM.

“The new unlimited virtualization rights with Windows Server 2003 R2 Datacenter Edition licenses will extend the savings customers can realize through server consolidation on the Windows Server platform. This move simplifies licensing, as customers no longer need to count, track or license virtualized instances of Windows Server,” the spokesperson said.

Large-scale virtualization can help customers consolidate physical servers, lower costs, and increase availability and responsiveness, he said, noting that customers also have the flexibility to use Microsoft Virtual Server 2005 R2 or third-party virtualization solutions.

To read more about how Linux virtualization is crying out for management tools, click here.

SWsoft, which provides virtualization software, said the move was a step in the right direction.

In a blog posting, CEO Serguei Beloussov said the company “applauds what Microsoft has done, which is the best interest of customers. At the same time, it must be noted that there is still much to be done by Microsoft and every software company to clarify licensing for the users of virtualization technology – especially operating system-level virtualization.”

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