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Downgrades Are Key to License Compliance

Posted: 
December 31, 2012
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[June 9, 2014 note: A more recent version of this report, updated to reflect licensing changes, can be found at www.directionsonmicrosoft.com/licensing/2014/06/downgrades-are-key-microsoft-license-compliance.]

Customers who acquire a license for a particular product version and edition may deploy an earlier version or different edition in its place under certain circumstances. These licensing rules, called downgrade rights, vary not only by sales channel where the license was purchased but also by the particular product line, including which specific version and edition was licensed. Organizations that understand downgrade rights as well as other rules associated with product versions and editions can minimize risk by avoiding common license compliance issues and save money by averting unnecessary license purchases.

How Offerings Are Categorized into Version and Edition

Generally, when a customer licenses Microsoft software, the license is for a specific version and edition of the product.

Version

A version is a major release of a software product, denoted by one of the following:

  • A year (for example, Windows Server Standard 2012)
  • A release number appended to an existing version (Windows Server 2008 R2)
  • A sequential number (Windows 7, Windows 8)
  • A new naming designation (Windows XP).

In addition to new features and various technical enhancements, a new product version is often accompanied by changes to the product's use rights, licensing model, pricing, or packaging (edition lineup).

Minor updates to a particular product version—typically delivered in the form of patches, security updates, and service packs—are usually provided for free. However, the right to use new versions, regardless of whether they are acquired via perpetual or subscription licenses, involves a fee.

Perpetual licenses, the most common license type, grant the purchaser the right to use a specific product version in perpetuity. The latest version of a perpetual license can be acquired through purchase of a new license or by virtue of having active Software Assurance (SA) on a preexisting license as of the date a new version becomes available to volume licensing customers. (SA is an add-on to perpetual licenses that offers version-upgrade rights and other benefits in exchange for an annual fee based on the underlying license.) If a new product version is licensed via a subscription rather than through a perpetual license, the subscription always includes rights to use the most recent version available, as long as the subscription is active.

Edition

Microsoft commonly offers several variations of a product (or product suite), called editions. Each edition offers a different collection of product features or use rights and is sold at various price points. When a new version of a product ships, all associated editions are usually released at the same time. Some editions of a product may be specific to a particular sales channel; for example, an edition might be available through volume licensing programs only.

Common names used for editions of client-side (desktop) applications or application suites are Standard, Professional, and Professional Plus. In the case of Office suites, the main differences between editions are which individual applications, such as Access and Outlook, are included and the presence of a few specialized server integration features, such as the ability to automatically archive Outlook data to Exchange Server.

Common names used for editions of server software are Standard, Enterprise, and Datacenter. What differentiates various editions of server products can vary widely depending on the particular product and product version, but common differences include technical features of interest to IT professionals rather than end users (such as scalability, high-availability, and security capabilities), use rights associated with virtualization, and, occasionally, the licensing model. Sporadically, Microsoft literature misuses the term "edition" to distinguish between the various Client Access Licenses (CALs) associated with a server product, such as the Standard CAL and Enterprise CAL for Exchange Server. (Directions considers this a misuse of terms because edition-related concepts, such as step-ups and edition downgrades, discussed below, aren't applicable to CALs.)

Customers with active SA coverage on a lower-level edition license can exchange it for a higher-level edition license through the purchase of a Step-up License. The Step-up License fee is equal to the difference in edition license prices plus the difference in SA fees for the period remaining on the current, lower-edition SA term. (In the absence of a step-up option, a new higher-edition license would have to be purchased in full.)

Version Downgrade Rights

Version downgrade rights entitle the owner of a product license to install and run an earlier version and equivalent edition of the same product in its place; for example, allowing a customer with a Windows 8 Pro license to use Windows 7 Professional instead. By downgrading, a customer does not forfeit the right to switch to the licensed (more recent) version at some point in the future.

Version downgrade rights are important because Microsoft typically stops selling a product version once a newer version becomes available; therefore, buying the latest license and exercising version downgrade rights is often the only option for licensing an expansion in deployment of a noncurrent version. This is often important for maintaining standardized configurations. For example, today, a customer wanting to deploy a new server running Windows Server 2008 Standard edition would purchase Windows Server 2012 Standard edition (the current version) and exercise version downgrade rights. (Note that for products licensed under the CAL licensing model, if a customer downgrades the version of the server software, the CAL version need only match (or exceed) the running version, not the version of the server license. For example, if a customer with a Windows Server 2012 Standard edition server license exercises downgrade rights to run Windows Server 2008 Standard edition instead, clients need only Windows Server 2008 CALs to access this server, not Windows Server 2012 CALs.)

When downgrading, customers are responsible for finding installation media, although Microsoft's Volume Licensing Service Center (VLSC) site generally provides at least the two prior versions of each business-related product.

Volume Licensing Offers Greatest Flexibility

The degree to which version downgrades are allowed depends on the distribution channel used to acquire the license.

Volume licensing. For licenses acquired through volume licensing programs, version downgrade rights generally provide the ability to substitute any previous version. This applies to CALs as well—for example, a SQL Server 2012 CAL may be used to license access to SQL Server 2008 R2, SQL Server 2008, or any previous version.

OEM and retail. OEM licenses for Windows Professional (and Windows Vista Business) generally confer downgrade rights to the two prior versions. For example, Windows 8 Pro licenses supplied by OEMs include the right to downgrade to Windows 7 Professional and Windows Vista Business, but not Windows XP Professional. Organizations that purchase PCs with Windows 8 Pro licenses and deploy Windows XP Professional in its place are at risk of license noncompliance. To remain compliant, the customer has a few options, including enhancing version downgrade rights by adding SA to new Windows 8 Pro PCs or purchasing new computers with Windows 7 Professional OEM licenses instead of Windows 8 Pro (an option that should be available until at least mid-2014).

Rules for other OEM licenses as well as retail licenses vary, with licenses for server software generally providing permissive version downgrade rights and licenses for client-side applications, such as Office Home and Business edition, providing no version downgrade rights at all. However, volume licensing rules allow SA to be added to many types of OEM and retail licenses within 90 days from the date the licenses are acquired (for example, to Windows Professional and Windows Server OEM licenses). If SA is added to such licenses, volume licensing's more liberal version downgrade use rights apply.

Edition Downgrade Rights

The edition downgrade use rights, sometimes referred to as down-edition rights or cross-edition rights, allow a customer to install and run a different (generally lower-level) edition than the one purchased. Edition downgrade rights are provided for only a few Microsoft products—the most prominent being Windows Server and SQL Server. They are commonly used in conjunction with version downgrade rights to allow a customer to deploy an earlier version of a different edition of the product. One example is running a SQL Server 2008 R2 Standard edition instance on a computer that is assigned a SQL Server 2012 Enterprise edition license.

There are two major reasons why edition downgrade rights are occasionally provided.

Edition eliminated. Sometimes Microsoft removes an edition from a product's edition lineup. Since the company typically ceases sales of all editions of a product version once a newer version becomes available, buying the latest license and exercising edition downgrade rights (combined with version downgrade rights) is often the only option for licensing expanded use of an old edition. For example, with the introduction of Windows Server 2012, there is no longer an Enterprise edition; customers can run past versions of Enterprise edition (such as Windows Server 2008 R2 Enterprise) by acquiring Windows Server 2012 Standard or Datacenter edition licenses and exercising edition downgrade rights.

Simplify virtualization. The second major reason for providing edition downgrade rights is to simplify licensing for virtualization scenarios. Often customers want to consolidate new as well as legacy server workloads by running multiple instances of a product on the same physical hardware, with each instance in its own virtual machine (VM). Higher-edition Windows Server and SQL Server product licenses (or sets of licenses) combine the right to run multiple instances of the software within VMs on the licensed hardware with edition downgrade rights so that customers do not need to be concerned with which particular edition is running within each VM. For example, a server licensed for Windows Server 2012 Datacenter and SQL Server 2012 Enterprise can be used to run VMs that are a mix of new and old Windows Server and SQL Server versions and editions.

Mistakes Can Lead to Noncompliance

Issues related to versions, editions, and downgrade rights are common sources of noncompliance. Often the result of misunderstanding Microsoft's rules or poor internal communications (between parties responsible for purchasing and deploying software), the most common compliance problems tend to fall into three general categories: edition mismatch, version mismatch, and application of the incorrect set of product use rights.

Edition Mismatch

The principal edition-related compliance error is to deploy a different edition than the one purchased.

The most egregious form of edition mismatch is to own a lower-level edition license but deploy a higher-level edition. Only very rarely do product use rights allow this (the major exception being Windows Server 2012 Standard edition allowing customers to downgrade to the Enterprise edition of Windows Server 2008 R2 or earlier). A common noncompliant scenario of this type involves deployment of Project Professional by a customer with licenses for Project Standard. If uncovered during an audit, the customer would have to purchase rights to Project Professional by buying licenses outright or, if the existing Project Standard edition licenses are covered under SA, by acquiring Step-Up Licenses.

The second form of edition mismatch is to own a higher-level edition license but deploy the lower-level edition. Occasionally, this is permissible under edition downgrade rights, as is the case for recent versions of Windows Server and SQL Server (mentioned above), but more often it is not. A common noncompliant scenario of this type is a customer who purchased Office Professional Plus licenses but deployed Office Standard. Although somewhat counterintuitive, Office Professional Plus licenses do not include edition downgrade rights to Office Standard. Thus, in the event of an audit, Office Professional Plus licenses generally cannot be used to cover deployments of Office Standard, and a customer would have to purchase new licenses to match the edition deployed, or if a special exception were made, to redeploy the edition originally purchased.

Version Mismatch

Inadvertent version mismatch errors are less common than accidental edition mismatches for two reasons. First, most licenses purchased through volume licensing programs include version downgrade rights, so using a version older than what is licensed is generally not an issue. Second, most customers understand that they are noncompliant if they deploy, for production purposes, a version more recent than the version they have licensed (or are entitled to under SA). However, version mismatch errors related to CALs occasionally catch some customers by surprise.

Many server products—such as Windows Server and Exchange Server—require a CAL for each client user or device. CALs license a client's access to all instances of the server product running within the organization, and the version of the CAL must match or exceed the version of the server software the client encounters. For example, an organization with Windows Server 2008 CALs is covered if their server infrastructure is composed of Windows Server 2008 and Windows Server 2003 R2 servers. However, allowing a single instance of a newer version of server software onto the organization's network—perhaps the result of a well-meaning IT professional just "trying out" the latest version—could prompt the need for new CALs. Expanding on the previous example, deploying an instance of Windows Server 2012 as a DNS server—a type of core network service accessible to all clients—would likely trigger an organization-wide requirement for Windows Server 2012 CALs.

Applying the Incorrect Set of Use Rights

When exercising version downgrade rights, customers are generally subject to the use rights associated with the version and edition of the license owned rather than the use rights associated with the (older) version or (different) edition deployed. A proper accounting of which use rights are in effect is sometimes essential to limit an organization's compliance risk as well as maximizing the utility of the licenses it already owns.

This issue tends to matter most when server workloads are virtualized because the relevant use rights—license reassignment frequency and the number of running instances permitted per license—have changed substantially over time for some products. Occasionally, the fact that use rights are determined by the license version and edition owned works in a customer's favor, resulting in fewer licenses being required than might otherwise be anticipated. But sometimes the opposite is true.

The best product and use right for illustrating both potential outcomes is SQL Server Enterprise edition and reassignment rights; its license reassignment rules have been altered multiple times in the past few years. Reassignment rules define how frequently and under what circumstances customers can move licenses between devices (in the case of device-based licenses) or users (in the case of user-based licenses) within their enterprise.

The SQL Server 2005 Enterprise edition license stipulated a maximum reassignment frequency of once every 90 days, meaning licensing a virtualized workload that regularly moved between servers (using VMware or Microsoft's live migration feature, for example) required each physical server where the workload could reside to have a SQL Server 2005 Enterprise edition license(s) permanently assigned to it. In contrast, Enterprise edition licenses for SQL Server 2008 and 2008 R2 provide unlimited reassignment within a server farm (which can contain up to two data centers, as long as the data centers are in time zones no more than four hours apart). When SQL Server 2012 was released, the Enterprise edition license terms went back to the previous once-every-90-days rule, except for licenses covered by SA, in which case the license could be moved as often as necessary within a server farm.

As a result, a SQL Server 2005 Enterprise edition workload running on a server assigned SQL Server 2005 Enterprise licenses or SQL Server 2012 Enterprise licenses (without SA) incurs the 90-day rule. In contrast, the same workload running on a server assigned SQL Server 2008 Enterprise or 2008 R2 Enterprise licenses benefits from more liberal reassignment rights. Similarly, reassignment rights for Exchange Server and SharePoint Server have changed between version 2003 and 2007 (loosened from once every 90 days to unfettered reassignment within a server farm) and again between 2010 and 2013 (back to once every 90 days for licenses that lack SA coverage), so analogous scenarios can be constructed.

The second virtualization-related use right, the number of instances that can run within VMs on a licensed device (under the context of a license or set of licenses), has also changed for some products, meaning that it matters which set of use rights are in effect. Here again there are examples of changes which may either favor or disadvantage customers. For example, instance rights were changed for Windows Server Standard as part of the transition from Windows Server 2008 R2 to Windows Server 2012, going from one instance permitted per license to two. However, in the case of SQL Server Enterprise edition, rules have been made stricter over the past decade, limiting the number of permitted SQL Server virtual machines on a physical server unless all SQL Server Enterprise edition licenses assigned to that server are covered by SA.

Resources

Windows 8 downgrade rights are covered in "Windows 8 Will Not Include Right to Downgrade to XP" on page 19 of the Oct. 2012 Update.

Version downgrade rights across most of Microsoft products are discussed in the "Downgrade rights for Microsoft Volume Licensing, OEM, and full-package product licenses" licensing brief at www.microsoft.com/licensing/about-licensing/briefs/downgrade-rights.aspx.

How step-up licensing works is discussed in the "Step-up licenses" licensing brief posted at www.microsoft.com/licensing/about-licensing/briefs/stepup-license.aspx.

Microsoft's Product Use Rights (PUR), published quarterly, defines volume licensing's permissive version downgrade rights (search for "Rights to use other versions") and notes special cases where edition downgrade rights are provided (search for "Down-edition Rights"). The latest PUR can be downloaded from www.microsoft.com/licensing/about-licensing/product-licensing.aspx#tab=1.

Microsoft's Product List, published monthly, documents rules for adding SA to OEM and retail licenses, as well as special-case downgrade rights and rules for various products (such as SQL Server 2012). The latest Product List can be downloaded from www.microsoft.com/licensing/about-licensing/product-licensing.aspx#tab=2.