• Illustration: Certificate of Authenticity

System Builders can now resell OS packages containing copies of Windows XP independently from hardware, as the result of recent changes to the System Builders license agreement. This change and a related decision to provide System Builder packages that include only a single copy of Windows XP eliminate restrictions that many vendors worked around and may also aid volume licensing customers who have purchased bare PCs without OSs and want to make them compliant with Microsoft's volume licensing rules.

Hardware Requirement

System Builders are generally smaller PC manufacturers who purchase packages from Microsoft that contain from one to 30 copies of the Windows OS. Each copy includes an installation CD-ROM, an End User License Agreement (EULA), and a Certificate of Authenticity (COA). The System Builder uses the disk to load the OS on a new computer, sticks the COA on the PC, and includes the disk and EULA when the computer is sold to customers. (For an illustration of the COA, see "Certificate of Authenticity".)

Until summer 2005, the System Builders license specifically restricted System Builders from reselling a System Builder package without accompanying hardware. However, the license didn't specify what constituted "hardware," and system builders sold System Builder packages of the OS with as little as a single chip that had been removed from a surplus circuit board. Since System Builder pricing for the Windows OS ranges from about US$85 to US$149, depending on purchase volume and Windows version, these OEM versions of Windows have a price advantage over the retail edition of Windows XP Professional, with its list price of US$299. (Lower-priced upgrade versions cannot legally be used on new PCs.)

Although shipping trivial hardware with copies of the OS seemed to skirt the intent of the System Builders agreement, even Microsoft's System Builder channel managers pointed out to System Builders that they could redistribute a System Builder OS package with a mouse or some other inexpensive hardware. Such sales do come with one caveat: whoever breaks the seal on a System Builders package is considered a System Builder and is responsible for end-user support (free or paid) for copies of Windows that are installed from the disks in the package.

In summer 2005, Microsoft changed the language of the System Builders license to permit redistribution of System Builder packages without hardware, as long as the outer System Builder package is not opened. By formally endorsing what many resellers have been doing anyway, Microsoft hopes to reduce the temptation for customers to purchase pirated versions of Windows.

A Compliance Solution

The changes will prove useful to corporate customers who want more flexibility in purchasing PCs and to System Builders themselves.

Many corporate customers like to purchase "white boxes," unbranded PCs that often lack a preinstalled OS, because they cost less and the company can specify a precise hardware configuration. Corporate purchasers often use volume licensing media (which does not require separate activation) to install their own OS and application image on a new PC, but this violates their volume license agreement: volume licensing customers may not use volume licensing media to install the Windows client OS on a bare PC. The computer must first have a COA verifying that it has an OEM OS license.

The change in the System Builder license means that organizations can purchase the required OEM OS and a COA through a System Builder. They also have 90 days from the purchase of the licenses to purchase Software Assurance, which confers upgrade rights and some support assistance.

System Builders also have an opportunity to help volume license customers become compliant with license agreements by supplying them with legal versions of Windows for their existing computers and perhaps providing other services, such as conducting inventories to identify PCs without COAs, storing OEM disks for customers, and providing Windows support.

Microsoft emphasizes that few organizations will want to install the System Builder OEM OS on bare boxes they have already provisioned. It requires separate activation and will overwrite any disk images created from volume licensed software. In most cases, customers who go this route will simply stick the COA from the OEM package on an existing machine and then, with the OEM license requirement satisfied, image the PC with volume license media. They can store the installation disk for future use, such as when the PC is declared surplus and its hard drive is wiped. The OEM CD-ROM can then be given, with the surplus PC, to a charity, employee, or other recipient or purchaser.

The System Builder license can be viewed at oem.microsoft.com/script/ContentPage.aspx?pageid=552816. (Registration required.)