Microsoft takes a shot at VMware with Windows Server 2016 licensing changes and enforcement push


So I’m sure everyone has seen, heard or read something about the new licensing model for Microsoft’s flagship Windows Server 2016.  People have been talking about it or reposting Microsoft’s publicly released information for over a year now.  We were all hoping it would change in some fashion.  Well, it didn’t.  If you have no idea what I’m talking about, here’s a quick rundown of the change to per core licensing for the venerable server OS.

Windows Server 2012 R2 Licensing Model

Windows Server 2012 R2 Standard and Datacenter Editions were licensed on a per Processor basis.  They were sold in 2 x Processor packs.  Standard Edition grants you 1 x physical OSE (Operating System Environment) or 2 x virtual OSEs.  This meant you could have 1 x physical Windows Server 2012 R2 instance or 2 x virtual Windows Server 2012 R2 instances on one physical host with 2 Processors.  Datacenter Edition grants you unlimited virtual OSEs on a 2 Processor licensed host.  If you have more than 2 Processors in a server you have to buy additional 2-packs.  This licensing model did not grant you License Mobility Rights unless you bought Software Assurance along with it which is a whole other story I’ll get into later.

  • Windows Server 2012 R2 Standard = $882 MSRP per 2-Processor Pack
  • Windows Server 2012 R2 Datacenter = $6155 MSRP per 2-Processor Pack

Sounds pretty simple right?  Well here’s where things get complicated.

Windows Server 2016 Licensing Model

Windows Server 2016 Standard and Datacenter Editions are now licensed on a per Core basis.  Now sold in 2-Core Packs.  The price of which is 1/8th the cost of the old 2-Processor packs for Windows Server 2012 R2 Standard.  Windows Server 2016 Standard and Datacenter have the same OSE grants as Windows Server 2012 R2 (2 virtual OSEs for Standard and Unlimited OSEs for Datacenter).  Microsoft has also instituted a 16-Core minimum requirement per physical server on both Standard and Datacenter, which means you need 8 x 2-Core packs to license a physical server with 8 cores per CPU on either edition.  If you have less then 8 cores per CPU or a single CPU with less than 16 cores you still have to license 16 cores.

  • Windows Server 2016 Standard = $110.25 MSRP per 2-Core Pack x 8 = $882 MSRP
  • Windows Server 2016 Datacenter = $769.38 MSRP per 2-Core Pack x 8 = $6155 MSRP

So the price is the same right?  Well no, not at all.  3 to 4 years ago this may not have been that big of a deal but with the advent of 24-Core CPUs and considering a large number of datacenters are running far more Cores per dual CPU server than the minimum requirement, this starts to get out of hand quickly.

Here’s a couple charts demonstrating the difference in cost to license a single physical server with Windows Server 2012 R2 vs Windows Server 2016.



As you can see the price to license Windows Server just got a lot higher.  So that’s it right?  The price just went up and that’s all?  No again, the price hike is only the first part of the story.

For Windows Server 2016 Standard you are only licensing 2 x virtual OSEs and that does not grant you License Mobility rights to move those virtual servers between hosts.  According to the licensing agreement, you can move the licensed OSEs once every 90 days to another physical device, but with vMotion, Live Migration, DRS, HA, etc., this just isn’t realistic.  You can also purchase Software Assurance to gain License Mobility rights for Standard, but since Windows Server 2016 just came out you aren’t really gaining anything paying that extra money other than License Mobility rights.  To top it off, if you read through the Product Use Terms and License Mobility guides you’ll find that Software Assurance doesn’t grant you the right to move Windows Server 2016 Standard OSEs to other servers in your server farm.  It only grants you the ability to move those licenses to an Authorized Mobility Partner or Microsoft Azure.

In the case of Windows Server 2016 Datacenter you have to license each host which allows unlimited OSEs and since you’re effectively licensing all your hosts with unlimited OSEs you can move those virtual OSEs to any Datacenter licensed host.

Note: For both Windows Server 2012 R2 and Windows Server 2016 on both editions you have to buy Windows CALs as well but for this article I won’t talk about it much since the cost and licensing stays pretty much the same.

What does all this mean?

If you’re virtualized you’re pretty much locked in to purchasing Windows Server 2016 Datacenter at this point right?  The answer is Yes and No.  You can purchase Windows Server 2016 Standard to license all the virtual OSEs in your virtual cluster if you want.  Unfortunately, it’s really ugly.

Let’s say I wanted to license 10 x Windows Server 2016 Standard virtual servers on 3 x VMware ESXi hosts.  To keep it simple I’ll say we’re using servers with Dual 8-core CPUs.  I of course have vCenter and am using vMotion, HA and DRS.  I would have to purchase enough Windows Server 2016 Standard licenses to cover all 10 virtual machines on all 3 hosts to be compliant.

Remembering I get 2 virtual OSE’s per 8 x 2-Core packs I can surmise I only need 5 x 8 (2-Packs) x 3 ESXi hosts.  That’s not so scary, until you do that math.  Hold on, you say, what if I have more than 8-Core CPUs?

I included all the variables here to demonstrate what this looks like for Windows Server 2012 R2 Standard and Windows Server 2016 Standard with 3 x ESXi hosts and 10 virtual OSEs.


Fairly simple and consistent licensing with Windows Server 2012 R2.


For Windows Server 2016 as you can see this changes significantly and the math gets a whole lot more complicated.  Here’s a chart with the relevant information for Windows Server 2016 Standard that may be easier to consume.


According to the data if you meet or exceed any of the following criteria you are immediately priced into Windows Server 2016 Datacenter licensing.

  • 5 or more ESXi hosts with 14 or more virtual OSEs on Dual 8-Core CPUs
  • 4 or more ESXi hosts with 14 or more virtual OSEs on Dual 10-Core CPUs
  • 14 or more virtual OSEs on 3 or more ESXi hosts with Dual 8-Core CPUs
  • 14 or more virtual OSEs on 3 or more ESXi hosts with Dual 10-Core CPUs
  • 14 or more virtual OSEs on 3 or more ESXi hosts with Dual 12-Core CPUs or above

If you’re curious, here’s what Windows Server 2016 Datacenter would cost for a single virtual host based on core count.


The cost per host jumps pretty significantly here when you have more than 8 cores per CPU, which most infrastructures do.

Wait, was it always like this just without the cores?

Some of you may be confused at this point and for good reason.  A large number of people previously equated a Windows Server 2012 R2 Standard 2-Processor license to a single virtual machine running Windows Server 2012 R2, especially in the SMB and Mid-market area.  I called it the Microsoft licensing Grey Area.  If you called a Reseller, a Licensing Solutions Partner (LSP for short, formerly LAR-Large Account Reseller) or even Microsoft themselves, you would get 3 or more conflicting answers as to how Windows Server 2012 R2 should be licensed in a virtual environment.  I’ve heard of and personally experienced calls with all 3 and gotten different answers. Even on repeated calls to the same outfit and talking to different people I’ve gotten different answers.  Due to this confusion most people just bought 1 x 2-Processor license for each virtual machine or even every 2 virtual machines and called it good.  Well guess what?  You’re out of compliance according to Microsoft.

Unfortunately for everyone, Windows Server 2012 R2 Standard does not have License Mobility and requires every host to be licensed just like Windows Server 2016 Standard.  This is especially pertinent if you use features like vMotion, HA, DRS, etc.   The cost was still significantly less of course due to not having to consider core count.

Microsoft has also been doing audits across the board, however during almost all of the audits I’ve seen up until now they didn’t even ask if the product was virtualized.  They were only concerned with how many servers (physical or virtual) and how many licensed copies of Windows Server you had.  This effectively confirmed the way many have been licensing the product.

So what’s this enforcement push about?

Microsoft licensing audits are just commonplace now and you may have noticed are happening more frequently.  Just about every one of my customers has been contacted at some point and some have been contacted for additional licensing audits less than a year after completing the first one.  Well get used to it because they are the new norm.  Speaking of audits and to that end licensing enforcement, don’t be surprised if they now start asking if the Windows Servers you have in your environment are running on physical hardware or if they’re virtual.  This verification of licensing compliance isn’t going away and will probably become more intrusive now that they have this additional licensing component to validate core counts across a number of their products including Windows Server 2016, SQL Server 2016 (Server+CAL is still available as well) and even System Center 2016 (more on this later).

Additionally, I’ve heard from a number of customers that have talked to their LSP (Licensing Solutions Partner) recently and while doing a review of their Microsoft licensing have indicated that they are out of compliance.  These customers were using the Grey Area licensing method and buying 1 x 2-Processor Windows Server 2012 R2 Standard license per virtual machine or per every 2 virtual machines.  The interesting part about that is the aforementioned LSP is the one who’s been selling them those out-of-compliance licenses this whole time.  Even further confirming the obvious licensing confusion.  I may be reading into that a bit, but I surmise that Microsoft has put the hammer down on their LSPs and made it clear that everyone needs to be on board with the new core based licensing scheme.  We’ll just have to wait and see if this is now the standard fare or not, but if I had to guess I’d say it definitely is.

If you didn’t get the hint yet, this is also directed fire at VMware

VMware vSphere being the de facto standard for virtualization and the market leader, you have to expect you’re going to take a few shots from competitors.  This core based licensing change significantly increases the cost to virtualize Windows Servers with vSphere in particular due in part to the absolute necessity of using vMotion, HA, DRS, etc.  Without those features you may as well run VMware Workstation or Hyper-V (yes I know it has Live Migration).

Microsoft is publicly explaining this as a way to keep up with higher core counts and to “give customers a more consistent licensing experience across multi-cloud environments.”   That explanation just doesn’t hold water for me.  This, is not only a shot at VMware but also Microsoft’s own customers.  If you’re in the SMB or Mid-Market sector this licensing change hurts and it hurts a lot.  A 125% or more increase in licensing costs in some cases is crazy to even think about.  I imagine their hope is to drive people to Hyper-V adoption by increasing Windows Server licensing costs.  They expect people to just drop their fully featured VMware infrastructures, thereby removing the VMware licensing cost and moving that cost to pay for this core based licensing scheme.  That’s some backwards thinking there.

Oh wait, they’re giving away “free” Windows Server 2016 Datacenter licensing!

Microsoft is also offering “free” Windows Server 2016 Datacenter licenses to those poor souls who decide to trash their VMware environment and move to Hyper-V.  Sounds pretty enticing right?  You can read more about it here and here if you like.  You could avoid the whole licensing price increase by just forklifting your entire virtual infrastructure to Hyper-V!  If that isn’t a shot across VMware’s bow I don’t know what is.

If only it were so easy and inexpensive, but it certainly is the exact opposite of that.  First you have to buy Software Assurance (SA) for all those “free” licenses.  There’s just a few problems with that.  You can either buy 2 years of SA through Open License, which is Not Renewable or you can buy 3 years of SA under Open Value which is renewable.  There’s also Open Value Subscription, EA and MPSA but those are a whole other mess of complication.  Software Assurance is equal to 25% of the license cost per year.  Since the license cost is going up due to the core based licensing changes, because you have to buy more core licenses the higher the core count, you better believe the price for SA is going up as well.


Software Assurance on Windows Server 2012 R2 was consistent and predictable.


Software Assurance on Windows Server 2016 is way more expensive and highly variable dependent on core count.

If you want centralized management of your new Hyper-V virtual infrastructure you’re also going to need System Center.  With System Center 2016 there’s another fun surprise.  It’s also core-based now and licensed almost identically to Windows Server 2016.  2-Core packs, 16 core minimum, Standard and Datacenter editions, etc.

Quick disclaimer:  I don’t license System Center often enough to be completely sure about the current pricing structure.  What I was able to find is a bit difficult to decipher.  System Center 2016 Datacenter is listed, according to Microsoft at $3607 for 16-cores with 2 Years of Software Assurance under Open  NL as listed here.  I couldn’t find an MSRP price without Software Assurance listed anywhere.  I’m going with the assumption that SA is 25% each year (2 Years included in listed price) which puts 8 x 2-Core Packs at ~$2404.  This puts a 2-Core Pack Server Management License (Server ML) at ~$300.50 each.


As indicated I’m making a few assumptions here on price.  That being said, here’s another chart to demonstrate what System Center 2016 will cost you per host for a variety of host configurations including Software Assurance options.


To bring this all together, to get the “free” licenses you have to buy at least 2 years of Software Assurance for those “free” Windows Server 2016 Datacenter licenses.  To get functionality similar to vCenter you need System Center 2016 and as we’ve already established since the licensing model is the same as Windows Server 2016, you more than likely need to get the System Center 2016 Datacenter edition.  It’s unclear if you have to buy Software Assurance with the System Center license as well, but since Microsoft includes it in their own advertised MSRP as seen above, I’ll include it.  Assuming a Dual 8-core CPU server we can add this up.

  • Windows Server 2016 Datacenter  – 2 Years Software Assurance = $3077.52
  • System Center 2016 Datacenter Server ML with 2 Years Software Assurance = $3606.00
  • Total Cost Per Virtual Host = $6683.52

Considering the total is more than just buying Windows Server 2016 Datacenter for one host, I don’t know how this makes sense.  You would already have a significant investment in VMware licensing.  You would also have to seriously consider 3 Years of Software Assurance under Open Value since the 2 Years Software Assurance on Open License is not renewable.  There’s also the migration and possibly training costs.  The true cost of these “free” Windows Server 2016 Datacenter licenses should not be understated.

Final thoughts

If Microsoft wants to alienate their customers and force them to seek alternatives then this licensing change is definitely going to do that.  You are locked into buying Windows Server 2016 Datacenter licenses, except in only the smallest of environments.  The “free” Windows Server 2016 Datacenter license program is kind of a joke for anyone truly entrenched with their VMware infrastructure.  I just can’t imagine a ton of people dropping their paid for VMware licensing, paying for SA on the “free” licenses, purchasing System Center 2016 and incurring the implementation, migration and probable training costs.  I don’t know about you, but that just seems like a recipe for disaster.  Not to mention the feature gap between vSphere and Hyper-V.  VMware vSphere is the industry leader for a reason, it’s rock solid when configured properly, easy to manage and while the licensing can be expensive, it’s a lot less complicated to license.

The bottom line, you pretty much have to buy Windows Server 2016 Datacenter edition if you’re in a virtual environment.  Really though, that may not be a bad thing.  The higher cost is unfortunate, but the upside is you can deploy new Windows Server 2016 virtual machines at will as long as you have resources to accommodate just like Windows Server 2012 R2 Datacenter.

This feels like VMware’s failed vRAM tax all over again.  The problem is Microsoft is going full tilt on this new licensing scheme for nearly every one of their server products.  I just don’t see it going away and that’s a problem for everyone.  It’s pretty easy to see why VMware and many others are rushing to get Linux-based appliances built to host their applications.  That being said, I don’t see customers porting everything over to Linux any time soon.  Though, I do think this licensing change will certainly hinder Windows Server 2016 adoption.

I hope this was informative and please leave comments, questions or even tell me if you think I screwed something up.  Thanks for reading!

9 thoughts on “Microsoft takes a shot at VMware with Windows Server 2016 licensing changes and enforcement push

  1. Dave

    Well laid out article. Was not aware of the vMotion limitations with Std. I agree that MS is screwing their customers but what else is new? We were encouraged to buy O365 licenses (by our MS Regional Rep, not just the VAR) two years ago “because it was cheaper” (than Suite and Core CALs) and specifically told that we “could move off of Office 2010 when we were ready”. 1.5 years later we are audited and they told us we were non-compliant because we were still using the 2010 bits and not the 2016 bits which our small team (two people serving 175) had not had time to deploy yet. It is telling that it is virtually (no pun intended) impossible to get a straight answer when it comes to their licensing. Also the fact that the v-dasher who audited us didn’t understand what E3 provided and initially told us we were short on Exchange and SharePoint CALs. Someone needs to find a way to either sue them or organize some sort of revolt regarding this change. Unethical.

  2. Jamey

    Thanks for this information. Licensing is always a nightmare and finding a well laid out write up that makes it somewhat understandable is invaluable. Thanks again.

  3. mert

    I always hope that Microsoft licensing will get easier but I doesn’t…Im glad that I don’t have to mess with this topic anymore.

  4. Tom Wardrop

    Um, I read through the licensing terms, and don’t see a mention of “you can move the licensed OSEs once every 90 days to another physical device”. Under “License Model Terms” -> “Per Core/CAL”, it pretty clearly implies the server license is applied to the physical server, NOT the underlying VM’s. Thus, “Section 9. License Assignment and Reassignment” under “Universal License Terms” refers to the reassignment of the License applied to the Physical Server. The 90 day reassignment restriction only applies to the licensed server (physical server), and applies no such restriction to the virtual OSE’s. Furthermore, the 90 day restriction has a number of exceptions that cover hardware failure and other such reasonable circumstances.

    Assuming you’re moving a virtual machine from one licensed virtual host to another, and neither host exceeds the number of VM’s it’s licensed for, you’re not violating any license.

    So unless you can point to some other clause that backs up the claim in this article, I believe you’re incorrect.

    1. Shawn Post author

      Good morning Tom! Thanks for reading and commenting! Ok there’s a lot to unpack here and it’s incredibly confusing so bear with me. I was summarizing when I stated “you can move the licensed OSEs once every 90 days to another physical device” because the reality is a dizzying array of legalese across multiple documents. The Product Terms under License Terms > License Model Terms > Per Core/CAL section appears to explain how Windows Server is licensed. You have to remember though that Windows Server isn’t the only product licensed by the Core/CAL method and this section actually covers both Windows Server and System Center. That being said, under Per Core/CAL section items 3 and 4 indicate coverage for both licensing editions of Windows Server. “3. Datacenter edition permits use of the server software in any number of OSEs on the Licensed Server. 4. Standard Edition permits use of one Running Instance of the server software in the Physical OSE on the Licensed Server (in addition to two Virtual OSEs), if the Physical OSE is used solely to host and manage the Virtual OSEs.” You are correct in stating the server license IS applied to the physical server, but each physically licensed server allows a certain number of OSEs depending on edition, whether they be physical or virtual. The license is always tied to the physical hardware regardless of whether you’re running a physical or virtual OSE using that license.

      Under License Terms > Universal License Terms > 9. License Assignment and Reassignment it does not state anything about the virtual instance, as you indicated, because the license isn’t tied to the virtual OSE, it’s tied to the physical hardware. In regards to the physical hardware it states very generally (because this sections pertains to all applicable licensing models) that you can reassign a license every 90 days or in specific circumstances of hardware failure, etc. Of note, this section doesn’t say anything about virtual migration methods such as Live Migration or vMotion because they aren’t covered by the 90-day reassignment restriction as a reasonable circumstance to migrate a license between multiple physical devices. Check out the Licensing Microsoft server products for use in virtual environments. It has a License Mobility section that explains migrating licenses between physical hardware for certain products but states in the Notes that “These rights do not apply to software licenses for the Windows Server operating system…”

      Each fully licensed (16-cores or 8 x 2-core packs minimum) physical server allows 1 x physical OSE or 2 x virtual OSEs to run on that physical hardware. To give this an example, if I have 2 x ESXi hosts. Each host must have Windows Server licenses assigned to it. How many depends on the number of VM’s I’m running and what edition of Windows Server I’m running (Standard or Datacenter). I’ll assume you’re talking about Standard (because Datacenter allows unlimited virtual OSEs). If we have 2 virtual OSEs running on 2 x ESXi hosts both servers would have to be fully licensed with 2 x Windows Server Standard licenses (8 x 2 core packs each assuming 16 cores). In that case you’re correct, you can run 2 VM’s on 2 servers with 2 licences, but you could not run 4 VM’s even though technically you’re entitled to 4 virtual OSEs unless you didn’t migrate them using vMotion or Live Migration or any other method to move them between physical hardware because as I described earlier those aren’t covered by the License Mobility or the 90-day license reassignment. So in that case and as I explained in the article you would be out of compliance.

  5. Ioannis

    Hey Shawn,
    This is a really nice article, very helpful.
    I really hate MS licensing, servers, workstations, office.
    I also hate to admit though, that changing from Windows to something else (for the guest OS /services), is very difficult. The time needed for developing the apps and the costs for that time are huge.
    I hope 2018 brings something new though.
    Happy new year!!!

    1. Shawn Post author

      Thanks Ioannis! Happy New Year! Yes Microsoft licensing is unnecessarily complicated. It’s also unfortunately the de facto standard for most applications across the world. There are quite a few manufacturers that are working their way around Microsoft by developing Linux based or even custom Operating Systems/Appliances to replace components formerly hosted by Windows Servers. VMware has built Photon OS for exactly that purpose for example. I have a feeling that eventually Microsoft may get the hint and will start making the licensing easier to digest.


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