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5 tips for managing Microsoft licensing costs

Microsoft licensing is confusing, but you don't have to overpay for Windows and Office

By , Network World
July 12, 2010 12:00 AM ET

Network World - Microsoft earns billions of dollars a year selling software licenses for products such as Windows and Office -- if you're running a business of any size, chances are you're a Microsoft customer. But unless you're an expert negotiator, there's a good chance you're paying too much for Microsoft licenses.

Entire books have been devoted to Microsoft licensing, and the industry analyst firm Directions on Microsoft even holds a "boot camp" to help customers better understand Microsoft's licensing schemes.  

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No single article can cover everything you need to know about Microsoft licenses. But here are five tips that could save your business money when it comes time to upgrade or purchase new Microsoft software.

Get "unlimited virtualization rights" with the Datacenter license

Windows Server licenses can be quite costly in large deployments, and virtualization technologies can make licensing even more confusing than it was in the days when physical x86 servers ruled the data center.

But both problems can be solved by taking advantage of the "Datacenter Edition" license, a pricing scheme for Windows Server 2008 R2 which has been ignored by many customers that could benefit from it, according to analysts.

Windows Server is licensed per processor, and with today's multi-core processors the number of licenses required may far exceed the actual number of servers in a data center. But Microsoft's Datacenter Edition license offers "unlimited virtualization rights, meaning customers have the use rights to run an unlimited number of virtualized instances of Windows Server on processors licensed with Windows Server 2008 R2 Datacenter without purchasing additional licenses," according to Microsoft.

"A lot of organizations don't know about the Datacenter Edition," and have simply licensed each Windows Server instance running on a virtual machine separately, says Cynthia Farren, who runs a consulting firm and writes a blog on Microsoft licensing for Network World.

One reason this license is underutilized is that just two years ago, virtualization density usually wasn't great enough to make the unlimited virtualization rights necessary.

The Datacenter Edition costs about $3,000 per processor, while the standard edition starts at $1,029. The cost of Client Access Licenses, or CALs, must also be factored in, and prices can vary depending on how large the customer is and how savvy the customer is during negotiations.

But in general, if you have a dual-core machine running eight VMs, licensing costs are about the same whether you buy the Datacenter License or not, according to Farren. Once an enterprise is heavily into virtualization, the Datacenter License can offer excellent savings.

"It's pure math," Farren says. "If you're running 40 virtual servers on a quad-core machine, you're going to save a lot of money by doing the Datacenter license."

Unfortunately, it's not uncommon for businesses to have a "dual processor running 20 virtual instances, and they will have bought 20 Windows servers," she says.

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