With Windows 7, Microsoft continues to evolve the licensing rules for the product. Some changes will save customers money, others will increase costs, and customers will need to take them into account in planning any migration or upgrade strategies. Downgrade rights to the most popular current business OS, Windows XP, will be affected, and the company is wrapping most of its remote and virtualized desktop offerings into an extra-cost add-on, Virtual Enterprise Centralized Desktop.

Downgrade Rights Limited

An unusual provision in the OEM End User License Agreement (EULA) for Windows 7 will offer downgrade rights to both Vista and Windows XP. This is more generous than the downgrade rights that came with OEM versions of Vista, which allowed customers to downgrade only to Windows XP, the most-recent OS. In Microsoft parlance, Vista offered only an n-1 downgrade, where n is the current shipping version. (Note that customers who purchase Software Assurance [SA], Microsoft's maintenance and upgrade rights license add-on, for the OS, including customers who have covered Windows on Enterprise Agreements, are not affected by these restrictions: SA confers rights to downgrade to previous OS versions as far back as Windows 95.)

The n-2 provision for Windows 7 reflects the current market reality: most business customers are still using Windows XP, whereas when Vista shipped, six years after Windows XP was released, the n-2 version (Windows 2000) was no longer in mainstream support and few business customers were still using it.

Windows 7's n-2 provision has a time limit. The EULA will permit downgrade rights to Windows XP on PCs sold for 18 months after Windows 7's general availability date (Oct. 22, 2009) or until the first service pack (SP1) for Windows 7 ships, whichever comes first. PCs sold after that will have downgrade rights only to Vista.

The expiring downgrade rights could be a problem for some customers—no one (including Microsoft) knows when SP1 will be released, so customers would be better off with a guaranteed 18 months of downgrade rights regardless of when SP1 is released. Upgrade planning could then incorporate a known termination date. Based on the time to SP1 for previous OS releases (12 months for Windows XP, 13 for Vista), this right is likely to expire about a year after Windows 7's release. Nevertheless, for customers who want to migrate to Windows 7, only PCs purchased after the expiration date will be affected by the loss of the XP downgrade, and many of the customers who face the most complex (and thus time-consuming) migrations already have Enterprise Agreements with SA on the OS.

While the dates could hurry the migration process for some customers, all business customers should be looking at migrating off Windows XP by early 2014, when Extended support expires and Microsoft will no longer commit to providing security updates. As of May 30, 2009, Microsoft stopped shipping XP to OEMs and system builders.

Customers who don't have unlimited upgrade (and downgrade) rights on the Windows OS, and who want to continue using Windows XP after the special downgrade rights expire have several options—buy an upgrade to Windows 7 through a volume program (volume licenses have more liberal downgrade provisions); purchase Vista from an OEM (if this version is still available) to get its XP downgrade rights; or buy SA for the OEM OS on all new PCs (within 90 days of the PC purchase).

The SA choice offers the lowest price—US$108 (or less, depending on volume) for two years of SA through Microsoft's Open License program—and the greatest flexibility for most customers who plan eventually to upgrade to Windows 7. It entitles them not only to unlimited downgrade versions but also to an upgrade—when they finally upgrade—to the most advanced edition of Windows 7, Enterprise edition.

XP Mode

Microsoft will make one substantial concession in Windows 7 for organizations that need to continue to use Windows XP: with XP Mode, Microsoft will for the first time give customers a "free" second OS license along with their OEM Windows license.

Specifically, customers who purchase Windows 7 Professional or Ultimate will be able to download a virtual machine (VM) running Windows XP and to run it at no additional charge on their Windows 7 computer. This license does not require purchase of SA or a volume upgrade.

Corporate applications that run on Windows XP but that have not been updated to run in Vista or Windows 7 may be able to run in the XP VM, permitting an organization to bring Windows 7 desktops in while preserving their investment in older applications, which they can load into this VM. To reduce the cost of incorporating other applications into the VM on every computer, the license rights permit putting a master copy of the VHD on the network and then distributing it to desktop computers (which must be running Windows 7). Organizations can also use automated patch or management tools from Microsoft or other vendors to populate the VM on each computer with their corporate applications.

Microsoft suggests that XP Mode is best for small companies, while larger firms should use Microsoft Enterprise Desktop Virtualization (MED-V), included in the Desktop Optimization Pack (DOP), which enables centralized management of VMs used on PCs. However, MED-V is costly for companies that don't have SA on the OS—they need to buy an OS upgrade for US$187 and add SA, which costs between US$33 and US$54 a year, before they can buy the DOP, which adds about US$6 a year per workstation. If they stop paying for SA, their right to use MED-V also terminates.

Companies of any size that are looking for an inexpensive short-term solution to bridge the gap from XP to Windows 7 while they update their corporate applications, and that don't plan to employ virtualized desktops in the long run, may find XP Mode to be sufficient. Alternatively, companies that purchase SA on new PCs could add the relatively inexpensive DOP for those machines for the initial two to three years of their SA term. They could discontinue SA payments once they have migrated all of their applications to Windows 7.

(XP Mode is described in more detail in "Virtual PC and XP Mode Aid Application Compatibility".)

Virtual Flexibility

Customers who purchase SA on the OS to get downgrade rights also get another option—the right to run four VMs on their desktop computers as long as they continue to pay SA. (Note that use of Windows 7 Enterprise edition, in contrast, is a perpetual right—customers do not need to remove it from a PC even if they later let their SA subscription lapse.)

Like XP Mode, these VMs can be used to run XP in a VM, but the VM entitlement under SA offers more flexibility than XP Mode, which runs on a special Windows 7-only version of Virtual PC that requires a processor with special hardware-level virtualization support (AMD-V for AMD processors, VT on Intel chips). By using their SA rights to run VMs, customers can use virtualization technology from Microsoft or other vendors that does not require a special processor.

The four-VM entitlement was also offered with SA on Vista, but with a catch: the OS that hosted the VMs had to be Vista Enterprise; it could not be Windows XP or even Vista Business.

That rule has been relaxed with Windows 7: customers can use any OS for which they have downgrade rights to host the four VMs to which SA entitles them. As a result, a customer with SA on Windows 7 can elect to run Windows XP as the primary OS on the computer while running Vista or Windows 7 in VMs on the machine.

Remote Computing Options

A major focus for Microsoft with Windows 7 will be to drive business customers to add-on services and software that can cost customers as much on an annual basis as their OEM copy of the OS did in the first place, thus providing a substantial boost to the company's revenue.

With Windows 7, certain remote computing rights that were previously part of the basic use rights for volume OS will be moved further out of the "free" column and into the "fee" column.

Remote boot is a technology that some organizations use to reduce their exposure to security threats and to enforce a standard organizational desktop. A master image of the standard desktop is stored on a server, and workstations boot that image over the network when they start up. Until Vista, network boot was permitted as part of OEM and retail licenses. With Vista, the right to boot a computer from an OS image on the network required SA, which costs US$33 to US$54 a year, depending on a customer's volume agreement. With Windows 7, the remote boot right will become part of VECD, which requires not only SA but another US$23 a year for VECD itself. Organizations may purchase VECD for computers that are not already licensed for SA (such as a contractor's computer or an employee's home computer) for US$110 a year.

Blade PCs are another form of centralized computing, in which users of locked-down workstations or thin clients, such as Windows CE terminals, use a remote desktop protocol to connect to an OS instance running on a blade, a single-card computer slotted into a rack in a data center. Blade PCs, previously licensed via remote desktop licenses, have also been added to VECD. Among other consequences, this changes the cost model from a perpetual license that cost about US$200 (and if the computer used to access the blade is licensed for the same OS, no additional payment was required) to a subscription that could cost more than US$100 a year.

According to Microsoft, adding all of its remote computing scenarios under a simplified computing scenario will "simplify the purchase experience." Unfortunately, it also makes it more expensive—a customer who wants to employ just one of the remote desktop technologies will be compelled to buy rights to several other technologies that it may not intend to use.


Windows 7 upgrade strategies are described in "Looking Ahead to Licensing Windows 7" on page 5 of the Apr. 2009 Update and in "OS, Enterprise Licenses and Upgrades Heavily Discounted" on page 26 of the May 2009 Update.

Software Assurance is described in "Evaluating Software Assurance" on page 29 of the June 2009 Update.