Saving more than 80% Licensing Costs?

This blog post was written in collaboration with guest author Zabiullah Hamidi, Software Asset Manager, independent Microsoft licence trainer and consultant, author.

Understanding the economics of the latest Windows Server licensing model “by individual virtual OSE” for use in virtual environments

With publishing the Windows Server 2022 Edition on October 1st, 2022, Microsoft added a ground-breaking licensing model: Licensing by individual virtual OSE (operating system environment). In our previous blog post (link here), we provided an in-depth analysis on the various licensing models of the Windows Server 2022, thus at this point we will just give you a summary. 

With the release of Windows Server 2016, the business model for Windows Server transitioned from processor-based to core-based licensing. From the beginning, Windows Server Licensing was always tied to the hardware.  According to the “classical” and still available licensing model “by physical cores” the number of Licenses required equals the number of Physical Cores on the Licensed Server, subject to a minimum of 8 Licenses per Physical Processor and a minimum of 16 Licenses per Server (no matter if Windows Server is running in a virtual OSE (“a virtual machine”) or a physical OSE (“the host”). 

So, if a physical processor has less than 8 cores, the minimum licensing requires that 8 licenses must be assigned to the physical processor. In addition, if a physical server has for instance only a single ten-core processor, according to the minimum licensing requirements, 16 licenses must be assigned to the server. Therefore, even if the number of Licenses required has to be equal with the number of physical cores, due to the minimum licensing the number of licenses required might be higher than the number of physical cores.  

When licensed based on physical cores, Windows Server Standard grants rights to run two virtual OSEs (if the Physical OSE is used solely to host and manage the Virtual OSEs). For each additional set of two OSEs you wish to use, the server must be relicensed for the same number of physical core licenses (also referred to as “License stacking”). As an alternative to this difficult-to-manage “stacking of standard licenses”, it is possible to license the server software with the Windows Server 2022 Datacenter Edition. Note that Datacenter edition has rights to unlimited virtualization so “stacking” therefore is not required. So, if you cover all physical cores of the server only once with Datacenter licenses, Datacenter edition permits use of the server software in any number of OSEs on the Licensed Server.

Effective October 2022, if the Windows server software is just running in a virtual OSE, it is possible to license only the processor power used, which is the number of virtual cores (vCores) per virtual OSE. Licensing by individual virtual OSE in fact means a licensing model not being tied to the hardware of the server anymore. As with licensing based on physical cores, licensing by individual virtual OSE requires a minimum licensing as well. The number of Licenses required equals the number of Virtual Cores in the virtual OSE, subject to a minimum of 8 Licenses per Virtual OSE. Licensing by individual virtual OSE is available for subscription licenses (which includes SA – equivalent Rights) or licenses with active Software Assurance only. All CALs used to access the software under the licensing model by individual virtual OSE must also be acquired as subscription licenses or have active Software Assurance.

So, when Software Assurance – which is pretty cost intensive - is mandatory when licensing by individual virtual OSE (for the Core licenses and the CALs as well) what is the value-add applying this licensing model? To find an answer to this issue, let us analyze a standalone host with 64 physical cores. For the sake of simplicity, the host does not run Windows Server (Hyper-V) but a third-party virtualization solution like VMware, Red Hat, SUSE, Citrix, among others. In addition, on this host 20 virtual OSEs are running, any of the 20 virtual OSEs has 4 vCores and is running the Windows Server Standard Edition. As we learnt from the previous blog post, in volume licensing, the break-even point occurs at ten virtual OSEs, irrespective of the number of virtual cores assigned to these specific VOSEs. When running up to ten OSEs, the more cost-effective licensing option is to employ "license stacking" with the Standard Edition. However, once you exceed the eleventh virtual OSE, licensing with the Datacenter Edition (which includes unlimited virtualization rights) becomes the more economically favorable choice. 

In the following Scenario described, the standalone host is running 20 virtual OSEs. Since the Break-Even-Point is 10 virtual OSEs when applying the licensing model “by physical cores”, the decision to cover the host with the Datacenter Edition is easy. Taking the latest licensing model “by individual virtual OSE” into account, the crucial question that  arises is: What is the economic difference when applying this licensing alternative?

Any virtual OSE in the analyzed Scenario has four virtual cores (running Windows Server Standard), but according to the minimum licensing requirements, any VOSE is subject to a minimum of 8 Licenses. Therefore, the total number of licenses required is the result of the Number of VOSEs * 8, adding up to 160 licenses required. Now, these 160 Standard Licenses have to be compared in a commercial way to the alternative licensing model, licensing “by physical cores' with Datacenter. The price-ratio of a Windows Server 2Core Standard license pack to a 2Core Datacenter license pack is about 5.6 (to put it in another way: The Datacenter Edition is more than five times expensive than the Standard Edition, for a 2Core License Pack Datacenter you might obtain 5.6 2Core License Packs of the Standard Edition). In the scenario analyzed, when licensing by individual virtual OSE, 80 2Core Packs Standard will be required, while 32 2Core Packs Datacenter will be required when licensing by physical cores. As described above, the price-ratio of the Standard to Datacenter Edition is about 5.6, so in exchange for the 32 2Core License Packs Datacenter required when licensing by physical cores, you might get 180 2Core License Packs of the Standard Edition, which is more than twice as much as required when licensing by individual virtual OSE. This calculation proves that significant cost savings (in this instance, even more than 50% savings) are realizable when licensing by individual virtual OSE instead of licensing by physical cores.

In principle, licensing by individual virtual OSE is recommended when virtual Windows server OSEs are running on a non-Microsoft virtualization software. What is less known and is also not apparent when studying the product terms: Licensing by individual virtual OSE may also be applied even if Hyper-V (Windows Server) is running in a physical OSE. Thus, there might be a scenario where you would still be running Windows Server as the host OS, and separately licensing individual virtual OSEs. For example, if you first license the server in our scenario with Windows Server Standard based on physical cores (64 physical Cores), which grants you the Right to run Windows Server in two virtual OSEs, and you need one or more additional virtual machines, in lieu of relicensing the physical server, you may license the remaining additional virtual machines separately (which are 18 VOSE). Without delving into the mathematical details of the derivation: Even in such a scenario, licensing by individual virtual OSE would prove much more cost-efficient than licensing by physical cores with the Datacenter edition. 

The full profitability of the licensing model “by individual virtual OSE” comes to light in the first place when used in virtual environments, for instance in a VMWare-Cluster, consisting of multiple virtual OSEs moving across various ESXI-hosts.

If you have multiple licensed servers in a cluster, it has some flexibility to move its workloads across them. If moving workloads requires moving licenses, one should remember that in general, you can reassign software licenses for server products, but not on a short-term basis (that is, not within 90 days of the last assignment). To put it in the words of Microsoft (universal license terms):” Before Customer uses software under a License, it must assign that License to a device or user, as appropriate. Customers may reassign a License to another device or user, but not less than 90 days since the last reassignment of that same License […].” 

For greater flexibility and more frequent reallocation of licenses, Microsoft is offering License Mobility across Server Farms rights. License Mobility across Server Farms rights are provided with Software Assurance (as a Software Assurance Benefit) and allow customers to move licenses freely between servers within a Server Farm. (A Server Farm generally can include up to two data centers in time zones that are not more than four hours apart. This supports workload mobility within a customer’s own data centers.) If customers are moving workloads between Licensed Servers, each of those servers must be fully licensed to support the said workloads.

Note: License Mobility across Server Farms is not available for Windows Server, so each server must be licensed for peak capacity at all times. As an exception to this, when licensing Windows Server by individual virtual OSE, you may move subscription licenses or licenses with Software Assurance at any time to another server within the same server Farm. This “relaxed reassignment right” is documented in License Model terms of the Product Terms, quote: “Customer may reassign any of its Licenses to any of its Licensed Servers located within the same Server Farm as often as needed.” This “relaxed reassignment rights” can have a tremendous economic impact on the licensing costs.

Let's have a look at a VMware vSphere Cluster, consisting of four ESXi Hosts (any host has 64 physical Cores) running 25 virtual OSEs in total (Windows Server Standard, any VOSE has 4 vCores). Remember, that License Mobility across Server Farms is not available for Windows Server when licensing by physical cores, so each server must be licensed for peak capacity at all times (that is because, for instance, solutions like VMotion enables the live migration of running virtual machines from one physical server to another with zero downtime). In this scenario, “peak capacity” means that any host must be licensed for 25 virtual OSEs. Since license mobility is denied when applying the licensing model “by physical cores', any host has to be covered with the Datacenter Edition (again: the Break-Even-Point is 10 virtual OSE). According to this, any host requires 32 Datacenter 2Core Licenses, the entire cluster is consuming 124 Datacenter 2Core Licenses. 

Now, switching to the licensing model “by individual virtual OSE” and using the “relaxed reassignment rights”, only the 25 virtual OSEs must be licensed individually, because when VOSEs are moving from one host to another, the license may reassigned as often as needed (but watch out: A license must always be assigned and reassigned to the hardware (“device”), not to a virtual Machine). Any virtual OSE in the VMWare Cluster can be covered (according to the minimum licensing requirements) with 8 vCores, the entire Cluster is consuming only 100 Standard 2Core Licenses. Returning to the previous subject of the price-ratio from Datacenter to Standard explanation, which is 5.6, the 124 Datacenter 2Core Licenses required when licensing by physical cores equals the costs of nearly 700 Standard 2Core Licenses. In fact, licensing by individual virtual OSE would only cause 1/7 of the licensing costs which had been incurred before October 1st, 2022. (For further information join our free webinar on November 29th, 2023.) 

Although the licensing cost reduction through licensing by individual virtual OSE might sound very tempting, some crucial issues need to be addressed. For instance, how you can ensure that all CALs accessing the licensed Server - which not only include the Windows CAL (Base CAL), but the so-called Additive CALs (like the Windows Remote Desktop Services CAL)- have active Software Assurance. Especially in highly complex Enterprises (as defined in the Enterprise Agreement) this can prove very challenging. Even more challenging than this  is to establish an appropriate SAM-process on how to document the dynamic movement of licenses from one host to another. First and foremost, the question if the potential licensing cost savings can justify the payment of Software Assurance? This should be addressed.

*See: Licensing Windows Server for use with virtualization technologies, Licensing Brief, October 2022, p.5