Vista virtualization: The bigger picture

As Mary Jo Foley noted earlier this week, Microsoft has belatedly gotten around to relaxing its licensing rules so that customers can install any edition of Windows Vista in a virtual machine, including the less expensive Home Basic and Home Premium flavors.

I haven't seen anyone document exactly how this change works yet, so I thought it would be worthwhile to share the full text of relevant sections of the old and new license agreements.

Today, when you install Windows Vista Home Basic, Home Premium, or Ultimate editions, the only mention of virtualization is in an Additional License Terms supplement at the end of the agreement. For Home Basic and Home Premium, this additional condition reads:

4. USE WITH VIRTUALIZATION TECHNOLOGIES. You may not use the software installed on the licensed device within a virtual (or otherwise emulated) hardware system.

That's pretty clear.

Now, here's the entire text of the SP1 supplement:

MICROSOFT SOFTWARE SUPPLEMENTAL LICENSE TERMS

WINDOWS VISTA HOME BASIC, HOME PREMIUM, BUSINESS, ULTIMATE, AND THEIR SERVICE PACK 1 VERSIONS

If you are licensed to use Microsoft Windows Vista Home Basic, Home Premium, Business, or Ultimate, or Service Pack 1 of any of these Windows Vista editions (the “software”), you have the following license right. If there is a conflict with any past or future license terms for the software, this supplemental license term applies.

Use with Virtualization Technologies. Instead of using the software directly on the licensed device, you may install and use the software within only one virtual (or otherwise emulated) hardware system on the licensed device. When used in a virtualized environment, content protected by digital rights management technology, BitLocker or any full volume disk drive encryption technology may not be as secure as protected content not in a virtualized environment. You should comply with all domestic and international laws that apply to such protected content.

A couple things are worth noting here.

First, there is no distinction among any retail or OEM Vista editions (Enterprise edition, sold only via volume licensing agreements, has separate terms). All retail and OEM editions now have exactly the same installation rights: You can install and use the software on a physical machine or in a virtual machine, but you must choose one or the other. Each Windows installation, whether it's on a physical or virtual machine, requires one Windows license.

Second, the wording in the SP1 supplement that pertains to the "licensed device" is clearer than in the previous license text. To understand its meaning, you have to look at the first appearance of the term in Section 2 of the license agreement, which reads:

Before you use the software under a license, you must assign that license to one device (physical hardware system). That device is the “licensed device.” A hardware partition or blade is considered to be a separate device.

Other Microsoft documents make clear that a "physical hardware system" at a bare minimum consists of a specific motherboard. Under Microsoft's interpretation of the license terms, you can replace every other component in a system and still be entitled to use the original copy of Windows. As soon as you replace the motherboard, however, that original assignment goes away.

The supplemental license agreement makes it clearer that the connection between physical hardware and an installed copy of Windows applies regardless of whether a virtual machine layer is interposed between the hardware and Windows. When you install Windows on a virtual machine, the license is tied to the VM on that physical machine (the licensed device).

How do the new license terms compare to the old one? If you install the RTM version of Windows Vista Business or Ultimate, you see this text in section 3f of the license agreement (Business) or section 6 of the Additional License Terms (Ultimate). The only difference is the phrase I've italiciuzed at the end of the first sentence, which is in the Ultimate license but missing from the Business license.

Use with Virtualization Technologies. You may use the software installed on the licensed device within a virtual (or otherwise emulated) hardware system on the licensed device. [emphasis added] If you do so, you may not play or access content or use applications protected by any Microsoft digital, information or enterprise rights management technology or other Microsoft rights management services or use BitLocker. We advise against playing or accessing content or using applications protected by other digital, information or enterprise rights management technology or other rights management services or using full volume disk drive encryption.

This emphasis on the "licensed device" has special meaning if you try to save a few bucks by buying an OEM copy of Windows Vista instead of a full retail copy. The price break can be substantial, as I've noted before (the prices for Vista are roughly the same as their XP equivalents: $90 or so for an OEM copy of Vista Home Basic, $199 for a full retail copy; $110 and $20 for the Home Premium equivalents. But here's the rub: OEM licenses are locked to the machine on which they're first installed and can't be transferred to another machine. A retail license can be transfered to another PC (a "licensed device" as long as you completely uninstall it from the original edition.

So if you put an OEM version of Vista in a VM on your Macbook, that Windows license is locked to the underlying hardware. (Technically, at least.) If you get a new Macbook Pro and sell your old Macbook, you have to transfer the Windows license as well. You can't uninstall that OEM copy and reinstall on your new machine. So for two Macbooks,each with Windows Vista Home Premium in a VM, you can pay for two OEM licenses at $262, or you can pay $299 upfront (yes, math wizards, that's $37 more than the cost of two licenses) for the right to choose one of the Macbooks to run Windows on.

In fact, the high price of a full retail version doesn't make much economic sense until you move the original license to a third or fourth machine, physical or virtual.

And what's with the odd language about DRM? The old license says "you may not play or access content or use applications protected by any Microsoft digital, information or enterprise rights management technology or other Microsoft rights management services or use BitLocker." The SP1 supplement says "When used in a virtualized environment, content protected by digital rights management technology, BitLocker or any full volume disk drive encryption technology may not be as secure as protected content not in a virtualized environment. You should comply with all domestic and international laws that apply to such protected content." That first sentence isn't really a restriction or condition, it's just a recommendation. So what's it doing in a license agreement? And does this clause remove the prohibition on use of Microsoft DRM in a VM? It's not at all clear.

So why is Microsoft making this change now? I think they just realized how much money they're leaving on the table by not making Home Basic legal to run in a VM. As I found when I looked through Dell's outlet a few weeks ago, roughly 30% of business buyers are choosing XP Home or Vista Home Basic. Why? Because it runs just fine in a VM; I'm not aware of a single third-party Windows application that won't run on Home Basic. As for the absence of the Aero visual effects, no virtualization software that I'm aware of even supports Aero yet, so visually there's no penalty for choosing the cheapest Vista of them all.

Meanwhile, if you're wondering what Apple is going to do about all this, my prediction is they'll do absolutely nothing. Although Apple could probably do a roaring business by preinstalling Windows Vista in virtual machines on its own hardware, there's one downside: As an OEM, Apple would be contractually obliged to support Windows as fully as it supports other operating systems. The exact terms require "end-user support on terms at least as favorable as the terms under which the system builder provides end-user support for any fully assembled computer system."

Can you imagine Apple requiring its Geniuses to support Windows Vista? Neither can I.