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Windows Server Licensing for Dummies


I have been using Windows Server for many years, but always from the technical side. I have never had to worry about licensing issues as the servers were installed and licensed by others. Now I am entering into areas where I am responsible for licensing as well. I expected that it would be relatively straight forward, but it is not. Here I will attempt to demystify it a bit.

I started out my research by reading Microsoft's own information. Unfortunately it let me more confused than before. I then performed some searches, including on the title of this blog post. It turned up only other users asking similar questions, but no good sources of information.

This post pertains to Windows Server 2008, however most things remain true for Windows Server 2003.


I believe that there are several sections of the license agreements that are open to various interpretations. I have in good faith done my best to make this post both easy to understand and accurate. You should however check with a Microsoft Licensing Specialist if you still have questions, and I also welcome corrections or additions.

Target Audience

Most large businesses have dedicated contacts within Microsoft and long ago learned the ins and outs of licensing. While potentially useful to all, my general target is small business who are considering buying retail or are looking into the lower entry volume license programs Microsoft offers which start with as few as 5 licenses.

Many small businesses simply buy Windows Server retail and have no idea about CAL's or other restrictions. These small businesses, especially in developing countries often have little or no contact with Microsoft and simply install a retail copy of Windows Server and during installation set Concurrent Connections to 999, never knowing that to be properly licensed they also need to acquire CAL's.


Windows 2008 Server comes in Web, Standard, Enterprise, and Datacenter as listed here. There is also a Small Business Edition which is based on Standard. To see all the differences go to Windows Server 2008: Overview of Editions, but then you will need to read the 6 separate pages listed in More Editions Information. Here is a summary of the most important differences in a single table.

Retail Price

Virtual Machine Instance

# of CPU's

  • No Hyper-V
  • No file services
  • No DHCP Sserver
  • No DNS Server
  • No Active Directory Server
  • .....

32 (x86)

64 (x64)

  • Failover clustering
  • Price is per processor
  • Failover clustering

Web Edition

The Web Edition has most "backside" features removed including DHCP server, DNS server, and even the ability to act as a file server. The Web Edition can run SQL Server, however it is not allowed to serve database clients other than software that runs on the server itself. The Web Edition is limited to Internet clients only, and while open to interpretation I believe use as an Intranet server or even an Extranet server over a VPN, even if it only served web services, or even web pages would not be within the license. More details

Standard and Enterprise

Standard and Enterprise are very similar, however Enterprise can use more memory, more processors, and has failover, clustering, and other Enterprise features.

Datacenter and Enterprise

Datacenter at first look is not easily differentiated from Enterprise aside form its unlimited virtual use rights. The major differences are:

Note that Datacenter is per processor, not per machine. So if you have a machine with 4 processors, Enterprise would only need one license, however for Datacenter you would need 4 licenses. This is why the virtual use rights are unlimited, because as you use more you will need more processors to handle the load.

The key to deploying Datacenter in a cost effective manner seems to be a big powerful processor with lots of cores. Intel has already talked about processors with 32 cores and in the future we may see many more. As more and more cores are built into processors in the future, Microsoft might adjust how Datacenter is licensed to include cores somehow into the licensing. Note that Datacenter does not include any CAL's, but they are still required where a CAL is normally needed.

Enterpise makes more sense when you need only limited virtualization, but require a lot of processors.


The prices above listed above are for the US and are retail. Prices do vary by country. Even in the US most resellers sell Windows 2008 below the suggested retail price. A quick online search at the time of writing listed an generally available price for Standard at $841 instead of $999.

Volume Licensing

Most companies skip retail completely and use volume licensing where even larger discounts are offered. Volume licensing programs start at just 5 licenses so volume licensing is not just for large companies. Naturally the more licenses bought, the greater the discount.


Client Access License (CAL's) are the most confusing part of Windows licensing. Those who have been working with them for years think it is simple, but for new people trying to decipher them it is actually quite complicated. Client licensing tries to explain it, but I have had several people read it and come away more confused than before. So let me see if I can simplify it.

For each and every user who is not on the Internet, or is not anonymous (i.e. logged in, or otherwise identifiable) you need a CAL. If they work for you as an employee or contractor, they need a CAL. So in short, if you have 50 employees and contractors you need 50 CAL's. Retail CAL's sell for about $30 each in the US.

CAL's can be per user, or per device. And servers can track them per seat (user or device), or per server. So there are actually 6 ways to calculate CAL's, and you can mix methods as well, so it gets complicated quickly. I will not cover per server here, but if all of your servers are used only by a few users at a time, but you have many users the per server option can be less expensive. This is a niche however and thus most users choose per seat.

If you choose per seat, you still have two choices. Per user, or per device. You can simply count up how many client computers you have and buy that many CAL's. So 50 computers, 50 CAL's. But if you have users who have multiple computers, then it is more economical to license per user instead of per device. If you share computers such as in a factory, that is one computer but 3 x 8 hour shifts per day, then it is more economical to license per device. The good news here is that you can mix them. You can use per device CAL's for the factory, and per user CAL's in the office. They cost the same, because they are the same CAL, you just decide how to use it.

You only need one CAL per device or user, even if you have multiple servers. This is a common point of confusion, yet I did not see any entry in the FAQ nor overview documents at Microsoft. I finally found the official answer on a completely separate section of Microsoft.com.

In this case, only 3 CAL's are needed. Most Windows Server License come with CAL's included. So in this case if both were Windows Server Standard which normally comes with 5 CAL's, the company would already have: 10 CAL's - 3 CAL's used = 7 more available CAL's.

Virtual Guest

Recently Microsoft made an adjustment extending host licenses to include virtual machine guest rights. That is you may no longer need separate licenses for each virtual machine guest, depending on your configuration and host edition. Many people remember the number 4 and believe that all Server editions allow 4 included guests. This is true for Enterprise, but not Standard or Web. Standard allows only 1 virtual guest to share the same license, and Web does not allow any. This is available not only for Windows Server 2008, but also Windows Server 2003 R2.

External Connector License

To many it appears you need an External Connector License to expose Windows Server to the Internet. This is not true, any Windows Server can serve Internet users so long as they are not employees of your organization, are anonymous, and you are not hosting applications specifically for them. An External Connector License allows you to included non-anonymous users directly into your back end if they are not employees of contractors of your company. It is meant to allow access by vendors, and other limited use externals.

What is an anonymous user?

"If access to the instances of server software is only through the Internet without being authenticated or otherwise individually identified by the server software or through any other means"

To me this is one of the biggest "problem clauses" in the license. Many people think that an anonymous user is anyone that does not authenticate using Windows authentication. However Microsoft clearly states that DHCP and DNS server usage constitutes an authenticated user.

And what about third party software? If web forum is installed, users who log into the web forums are not anonymous.


In most cases the pricing of Windows Server is quite economical. However there are some cases where it does not fit well economically.

Small businesses most likely to use retail, and only have one server. Large businesses get volume discounts and typically only need one CAL for each user, but have many servers. So their cost per user can be quite low. While a small business may only need one server, they not only are likely to buy retail but still need a CAL for each user. For example:

The small and medium do not differ very much per user, however that is expected as with more users more servers are needed. However the tiny business pays quite a bit more. The numbers I used are average retail prices in the US. The medium business also has access to greater discounts using volume licensing, so in fact their per user is significantly lower than this example.

Many business need a small server to provide NAT, DHCP, and basic file sharing. They use very little of Windows server. Windows Vista and XP can do NAT and DHCP through Internet connection sharing, but file sharing has a limit of 5 simultaneous connections and file sharing connections do not time out very quickly. The next step up is to Windows Server which becomes quite expensive on the low end for such basic features only. Large business already have CAL's, so adding a Windows server only incurs the cost of a new server license.


There is an online licensing wizard. Unfortunately you need to know quite a bit about licensing even before you can use the wizard. For example it makes you choose before hand the edition of Windows 2008 and makes no recommendations based on this.

Note: The wizard seems to be Internet Explorer only, but no warning is given. So to be sure it works, use Internet Explorer.


I have presented a few commons scenarios as I understand them. But again, before committing to any interpretation I have posted here, please contact and verify your exact situation with a Microsoft Licensing Specialist.

Scenario - Web Server with Virtualization

Requirement: A public web server, but for security reasons 4 virtual machines are needed as well.

In such a scenario if there is no backend access, no CAL's would be required. But Standard only includes virtual use rights for 1 guest. Web edition might look attractive, but it does not have virtualization functionality and includes no virtualization rights. Enterprise includes 4 virtual use rights, but Datacenter may look attractive as it includes unlimited virtual rights and is less expensive.

However the best option is to purchase on Standard which includes 1 virtual use right, and then 3 licenses for 3 additional web editions. Non discounted retail cost: $999 + $469 * 3 = $2406

Scenario - Internet Router

Requirement: Internet routing, firewall, file sharing as guest. 10 Users.

While it might appear that CAL's are not required, Microsoft clearly states that DHCP and other aspects required in this example require CAL's. Thus the best option is Standard + 5 CAL's.

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Kamran on 11.06.2009 wrote: Very nice read. Helped me understand the concept of Microsoft Licensing and CALs quite clearly. Thank you for posting this.
Dre on 11.06.2009 wrote: Excellent. I am just like you, in that I have always dealt with the technical/admin side of windows server. I was busting my head open trying to grasp the concept of CALs. This helped a LOT. Thanks.
Andrew on 11.06.2009 wrote: Thank you! This was very informative and straight to the point. If only Microsoft / Sales reps were as concise and accurate...

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