Is it OK to use OEM Windows on your own PC? Don't ask Microsoft

If Microsoft expects its customers to take license agreements seriously, it has a responsibility to communicate the terms of those agreements to its customers clearly and unambiguously. As I noted earlier this month, Microsoft does a generally poor job of explaining its complicated rules for how Windows licensing works. But I deliberately left one type of Windows license off that list, because it deserves its own special place in the Corporate Communications Hall of Shame.

I'm talking about OEM System Builder licenses for Windows desktop editions. If you look at any online shopping site that caters to PC enthusiasts, you'll find these copies displayed alongside the upgrade and full license packages that Microsoft says retail customers are supposed to buy. My friend and fellow Windows expert Paul Thurrott just posted a thorough look at the Windows 7 OEM System Builder package, complete with pictures. If you're building your own PC or looking for installation media that won't make you jump through hoops to install it, this product is extremely attractive, because it's significantly less expensive than a full retail license. The installation media works almost exactly like a full retail copy of Windows, except that it can't be used to perform upgrades, only a custom (clean) install. After installation, an OEM copy is essentially indistinguishable from a retail copy.

Many readers tell me they bought that software and installed it on their own new (or old) PC, happily saving a significant chunk of change in the process. According to Microsoft, they are violating the terms of the OEM System Builder license agreement, which says, in convoluted language, that you must install the software using the OEM Preinstallation Kit and then resell the PC to a third party. If you install that software on your own PC, you don't have a "genuine" copy of Windows.

But how are you supposed to know? Microsoft allows any online retailer to sell OEM System Builder software with no indication of its terms and conditions. A consumer is expected to read the license agreement printed in tiny type on the outside of the OEM System Builder software package and then translate its dense legalese into plain English (PDF here):

Once, not so long ago, Microsoft officially allowed hobbyists and Windows enthusiasts to use discounted OEM System Builder copies on new PCs built for personal use. Last year, in a post titled OEM licensing confusion starts at Microsoft.com, I posted pictures of official, Microsoft-produced documents that made this policy crystal-clear, in plain English. A document containing this graphic was available just last year, in fact: [Update: Some people reading this article seem a bit confused. The following language was not actually part of the Windows license agreement. Instead it was contained in official documents Microsoft distributed to help explain the license terms for its partners.]

But that document is now gone. In fact, over the past two years, someone at Microsoft has deliberately and methodically scrubbed all traces of those documents from the web. Only a few traces of that language have survived, as in this blog post from the Microsoft Small Business Community blog. They've been replaced with a single page at Microsoft's OEM Partner Center, which tries to stomp out the idea that end users can purchase and use this software. The Licensing for Hobbyists page, written for Microsoft partners and not for consumers, includes this Q&A, which was written more than a year ago:

Q. What is Microsoft doing to clarify these terms to resellers and end-users?

A. In addition to announcing this clarification to the System Builder channel, Microsoft is working with online retailers to post language on their websites explaining the licensing rules for OEM System Builder channel software.

Whoever was in charge of that effort has some 'splainin' to do, because no such language is available on any of the online retail sites I checked.

I used Microsoft's own "decision engine" to shop for a single copy of Windows 7 Ultimate, 64-bit edition. According to the Bing Shopping results, there are 21 online stores where you can buy this package, for prices ranging from $169.53 to $237.59. Bing's Cashback program offers an additional rebate of as much as 7% on those prices.

And here's the kicker: Those results show only OEM System Builder copies. When I tried to search for a fully licensed copy of Windows 7 Ultimate using Bing, I couldn't find it anywhere. Using Bing, I found upgrades and OEM copies only, neither of which can be legally installed on a newly built homebrew PC. I had better luck searching at Google, where I finally found a listing of 138 sellers offering the full Windows 7 package for prices that start at $280.92.

Following the links from those Bing results led to pages at ZipZoomfly.com and CompUSA.com and TigerDirect and CompSource. None of those pages contained any licensing information (not even a link to the Microsoft OEM license) and none of them showed the actual product package. The listing page at Newegg.com does contain the following disclaimer: "Use of this OEM System Builder Channel software is subject to the terms of the Microsoft OEM System Builder License. This software is intended for pre-installation on a new personal computer for resale..." But there's no way to actually read that license, and nothing discourages any consumer from buying it for personal use. That scenario was repeated on every site I visited.

If you're confused by all this information (or lack thereof), you might do what several would-be buyers did and visit Microsoft's Windows 7 forums, where you can get your questions answered by Microsoft support engineers and MVPs. These Microsoft Answers forums generally do a good job on technical questions. But there's no guarantee you'll get a consistent or accurate answer on licensing issues. The answer to this question, for example, seems to be 100% wrong:

Q: I have a small company and one of my clients has asked if I could upgrade several of their computers hardware and have inquired about me updating their computers to Windows 7.

In researching pricing for Windows 7 to give an estimate on cost for their requested computer work, I see that several places offer for purchase "OEM System Builder" software. The 'OEM System Builder" is subject to "Microsoft OEM System Builder License" , can I purchase this OEM software or do I need to purchase the 'full' version?

A: Yes you can purchase the OEM version of Windows 7. The OEM versions of Windows have been available to the general public for many, many years and have worked without problems.

The main difference between OEM and Retail is that the OEM license does not allow moving the OS to a different computer, once it is installed.

Other than this, they are the same OS.

And here's another Q&A, asked and answered two days after Windows 7 was released last month:

Q: I build my own computers--mainly so I'll know what's in them and dont have to fool with the manufacturers' alleged "tech support" while I'm in warranty. At some point in the future I'll probably want to build one with Windows 7--when I do, do I qualify to use the "OEM System Builders" version or do I have to buy a retail copy?

A: Yes, you can buy the "OEM System Builders" version of Windows 7. Many online stores sell it.

That response was marked as an official Answer by the moderator of the forum, a Microsoft MVP.

So, to recap: A PC hobbyist or enthusiast who wants to buy a legal copy of Windows 7 at a discount gets confusing and conflicting information from Microsoft's web site. Microsoft's own "decision engine" leads him to software he isn't supposed to use, and even offers extra discounts if he buys through those links. He gets no information from online retailers who will happily take his money for a product he technically isn't allowed to install. And he gets absolutely wrong answers if he asks at Microsoft's official help forums.

Is that pathetic, or what?

A Microsoft spokesperson told me that the policy toward use of OEM software by home PC builders hasn't changed, and that the documents I found and pointed readers to for years were "mistakes." Sorry, that doesn't cut it. When you publish information on your website, and when you create glossy handouts that you distribute to your partners for years, those represent your policy. You can't suddenly change that policy by deleting copies of the old documents and pretending they never existed. That shows an appalling lack of transparency, not to mention a lack of respect for customers.

Normally, I'm a firm believer in following the letter and the spirit of software license agreements. In this case, though, given Microsoft's complete breakdown in communicating with its customers, I'm willing to make a major exception. I have no problem enthusiastically recommending these discounted copies of Windows for anyone building a PC for their own personal use. And I think someone at Microsoft should step up and formally approve that exception. It's the right thing to do.