Your Enterprise Upgrade Options – Licensing Strategies for Windows 7 Upgrade

By Paul DeGroot, Directions on Microsoft

Matching IT and business objectives with the right licensing plan can significantly reduce the cost of Windows 7 upgrades

The release of Windows 7 has prompted many organizations to begin planning desktop OS upgrades. In addition to planning the technical aspects of a desktop OS deployment, they must also determine how best to purchase the Windows 7 licenses they need. Options range from simply bringing in Windows 7 as they purchase new PCs to volume licensing programs that give them the immediate right to upgrade every computer to the new OS. Choosing the right licensing program requires matching IT and business objectives to the licensing plan that will offer what they need at the lowest cost.

What’s Special About Windows

The Windows desktop OS is unique from a volume licensing perspective because companies cannot make their initial purchase of Windows through volume licensing. Instead, each computer must already have a copy of Windows on it—usually preinstalled by an OEM—before companies can cover that copy of Windows in a volume agreement.

Covering Windows on a volume agreement is also the only way to get Software Assurance (SA), an annual subscription that’s added to a license and provides discounts on upgrades (if Microsoft delivers an upgrade before the subscription expires) and other benefits, including access to special Windows versions and additional usage rights. Here, Windows is unique as well. While for most software SA must be purchased at the same time as the license to which it’s added, SA can be attached to Windows (specifically, Windows 7 Professional or Ultimate) on a new PC if SA is purchased within 90 days of the computer’s purchase; if SA is not added within that period, the customer who wants SA must purchase another Windows license, such as a Windows 7 Professional Upgrade, and add SA to that upgrade license when it is purchased.

This aspect of Microsoft licensing can have a dramatic impact on upgrade costs. In the worst case, organizations might pay three times for the same Windows OS edition on every computer: first for the OEM license that comes with the computer; second for an upgrade license (which could be an upgrade for the same version of the OS) that some new volume licensing agreements mandate; and third for SA payments, which can cost more than an OEM license over three years and might not deliver an upgrade to the next OS version before the subscription ends.

However, organizations have several ways to avoid the worst-case scenario and achieve a desired desktop OS configuration and SA benefits without buying multiple copies of the same license.

Common Upgrade Goals

To make the most effective licensing decision for Windows 7, organizations must determine as clearly as possible their goals for their PC configurations, and what technologies to deploy with Windows 7 to achieve those goals. Organizations need to decide whether they intend to standardize on a single version of Windows across the organization, and whether they need access to key technologies tied to Windows 7 licensing, including the following:

  • Windows 7 Enterprise Edition, a special version of the OS with additional features
  • The Desktop Optimization Pack, a set of tools for managing software on Windows PCs
  • Desktop virtualization to reduce application conflicts or accommodate software that does not run on recent versions of Windows
  • Virtual desktop infrastructure on servers to centralize desktop management.
Standardize All Workstations

Using a common version and edition of Windows across an organization can reduce an organization’s support costs and ease custom software development. Since every workstation has a known configuration, help desks can more quickly isolate common problems and developers can make assumptions about the APIs available on users’ computers when customizing applications.

An organization that wants standardization is more likely to use a volume licensing plan that incorporates SA. In particular, adding SA to Windows confers more liberal downgrade rights than those that come with the original OEM license. These downgrade rights, which allow an organization to install almost any earlier business version of Windows on newly purchased PCs, can be helpful in maintaining a standard desktop configuration as new versions of Windows are released.

Deploy Enterprise Edition

Windows 7 Enterprise delivers some unique management, security, and remote access features that will particularly appeal to large, global organizations and organizations supporting many portable computers. Notable features include the following:

  • BitLocker full-disk encryption
  • Direct Access, which simplifies the user interface for virtual private networking
  • Multilingual user interface, which lets a global organization deploy a single patch or service pack across all its PCs
  • Branch Cache, which can store copies of frequently accessed files on local workstations, thus improving network performance and reducing the need for a branch office to have a caching server.

Enterprise is available as a free upgrade, but only for OS licenses to which SA has been added. While most SA benefits expire when an SA subscription expires (the rights are restored if SA is immediately renewed), customers are not required to remove Enterprise at the end of an SA subscription that is not renewed.

All Enterprise features are also available in Windows 7 Ultimate, available on new PCs and through retail channels, but licensing rules prevent Ultimate from being reimaged—that is, being overwritten with volume software—since Ultimate is not available as volume software. (Volume software uses a simpler activation technology that permits easier deployment within an enterprise; reimaging is also used to preload other custom or licensed software on an organization’s computers). This barrier makes Ultimate impractical for organizations that want to standardize on a single OS configuration, although it may be a good alternative to Enterprise in organizations that do not reimage but stick with the OEM image for a computer’s full life cycle.

Use Desktop Optimization Pack Utilities

The Desktop Optimization Pack (DOP) is a set of virtualization and desktop management utilities available (for a nominal annual fee) to organizations that add SA subscriptions to Windows client OS licenses.

The current version includes the following:

  • Application Virtualization, for centrally managed applications that are delivered over the network and run in isolated environments on each user’s computer
  • Microsoft Enterprise Desktop Virtualization (MED-V), for centralized management of virtual machines (VMs) that are running on PCs
  • Asset Inventory Service, which helps organizations inventory software installed on PCs
  • Advanced Group Policy Management, which gives administrators more control over the configuration of an organization’s PCs
  • The Diagnostics and Recovery Toolkit, which can diagnose and repair unbootable Windows PCs and recover lost or deleted data
  • Desktop Error Monitoring, which aggregates error-related activity across an organization’s Windows clients.

The DOP is only available to organizations with SA on Windows and requires current SA coverage; unlike Windows 7 Enterprise, it may not be used after SA coverage expires.

Run Legacy Applications in Desktop VMs

Many organizations have important custom or commercial applications that run poorly, if at all, on Vista and Windows 7. One solution is to run such applications on each PC in a VM with an earlier version of Windows.

A license (including an OEM licenses) for Windows 7 Professional or Ultimate permits an organization to run one Windows XP VM at no extra charge. This XP Mode feature is the first time Microsoft has permitted two installations of the OS on a single license and eliminates one of the major barriers to upgrading. Adding SA to the OS gives an organization the right to run up to four VMs on one PC. As noted above, SA also grants the right to subscribe to the DOP, whose MED-V component provides additional utilities for deploying preconfigured VMs to PCs and controlling which users can access them.

Use Virtual Desktop Infrastructure to Centralize Management

Desktops are the most difficult devices to manage in most IT environments because of the potential for user-introduced configuration errors, malware, or inappropriate use of a business resource for personal purposes. Hoping to reduce these costs and risks, some organizations might deploy a virtual desktop infrastructure (VDI), in which users’ Windows desktops reside in carefully crafted VMs on centralized servers and are accessed using a remote desktop protocol, possibly from a thin graphics terminal or other client device that requires less management effort than a full PC.

The main licensing issue with VDI is licensing the desktop OS that runs in server-based VMs. While retail or OEM licenses can be purchased to populate the VMs, Microsoft’s remote connection rules require that the PC accessing the VM be licensed for the same or a higher version and edition of Windows. For example, a computer licensed for Windows XP Professional cannot remotely access a VM running Windows 7 Professional (although the reverse is possible). Organizations that want to make extensive use of VDI will find that purchasing SA for desktops that access remote VMs is a relatively inexpensive solution (compared with the price of retail software) and also gives the organization broad downgrade rights for the VM OS itself.

Licensing Strategies

The licensing strategies for Windows 7 upgrades described here are not exhaustive, but they do illustrate how volume licensing programs can be used to enable broader organizational goals, from saving money on software, to reducing management costs, to enabling new OS and application infrastructures. The strategies described here include companywide upgrades that cover all (including older) workstations in an organization, as well as strategies that reduce costs by targeting subsets of users or application.

Most customers will find that the scenarios described below involve a trade-off of one kind or another. The most costly scenario offers the greatest flexibility and broadest opportunities for additional services and rights. The least expensive scenario offers fewer services and options.

Companywide License Upgrades

For the maximum level of OS standardization, access to Windows 7 Enterprise and DOP, and local and VDI virtualization rights, organizations should consider two Microsoft volume licensing plans, Enterprise Agreements (EAs) and Open Value Companywide, which cover all the PCs in an organization with license upgrades and SA. In these agreements, customers pay according to the number of PCs they have. EAs are available to organizations with 250 or more PCs and are the most common way for organizations with more than 1,000 computers to license their desktops, not only for the latest version of Windows but also for the latest version of Office, as well as to buy the Client Access Licenses (CALs) required to access server products such as Windows Server, Exchange, and SharePoint.

These programs can offer substantial discounts on OS upgrades, but will usually be the most expensive solutions, since they cover all PCs in the organization and require the purchase of OS upgrades (regardless of the OS already running on the organization’s workstations) plus an SA subscription for each PC. Directions estimates that an organization with 8,000 computers would pay about US$1.6 million over a three-year period to upgrade to Windows 7 with an EA.

Long-term users of these plans would pay less, since the organization is required to purchase the upgrade license only in its first agreement. On renewal of that agreement for another three years, the organization would already have paid for the existing perpetual license and so would pay for the SA subscription only, which would be about US$40 to US$54 a year per workstation (depending on volume).

Subscription Licensing

Another approach that generates immediate standardization and offers time-limited (three years) access to Windows 7 Enterprise, virtualization rights, and other SA benefits at lower cost than an EA or Open Value Companywide is a subscription agreement—an EA Subscription or Open Value Subscription. With these agreements, the customer does not purchase licenses but pays only a subscription fee, which includes SA benefits, ranging from US$50 to US$70 each year. At the end of the subscription, customers have three choices: stop using the software, buy out the licenses for the software for an additional fee, or renew the subscription (for one or three years).

Using a subscription licensing program for Windows 7 upgrades offers cost advantages for customers because the subscription fee is less costly than purchasing an upgrade license and an SA subscription for that license. It also bypasses a major restriction on SA-only purchases—the requirement that SA must be purchased within 90 days of the PC purchase itself.

Customers purchasing a subscription to the Windows OS avoid these problems: they can immediately upgrade all of their current computers—including those well past the 90-day limit for purchasing SA—to the latest version of Windows without purchasing a full upgrade for each computer.

The subscription licensing approach is not a perfect replacement for an EA, and planning is required to avoid problems at the end of the subscription.

Outbuying the buyout. At the end of the subscription, a customer who does not renew it must either pay a stiff buyout fee or stop using the software. However, because customers also get an OEM Windows 7 Professional license each time they buy a new PC, they will acquire full licenses they can keep using after the subscription runs out for all of the PCs they acquire during the subscription agreement. No buyout is required. By matching their PC replacement program to the life of the subscription agreement, they will be fully licensed at the end of the subscription agreement. This approach lets an organization upgrade all of their PCs immediately (to standardize their desktops, for example), while transitioning over several years to full Windows 7 ownership through the inexpensive OEM channel.

Directions estimates that this scenario, if deployed in early 2010, would cost an organization with 8,000 computers between US$1.3 million and US$1.5 million, at a replacement rate of 2,000 computers a year. (For one scenario describing this approach, see the illustration “Outbuying the Buyout” on page .14)

Losing Enterprise. A subscription plan does not permit the subscriber to continue using Windows 7 Enterprise when the subscription—and SA coverage—ends. This contrasts with the rules for SA when it is associated with an OEM license or volume upgrade. One solution: when buying replacement PCs, purchase Windows 7 Ultimate from OEMs at a slightly higher price (most OEMs charge a one-time fee of US$50 extra) for specific computers (e.g., portables) that benefit most from the features in Windows 7 Enterprise and Ultimate. This option probably will not appeal to organizations that want to maintain standard PC configurations on all PCs and portables.

Leftover PCs. Subscription plans do not permit selective buyouts, such as buyouts of Windows OS licenses for only those computers that are not already licensed for the latest version of the OS. If an organization still has some PCs not licensed for the latest OS edition when the subscription ends, those PCs will need to be retired immediately (and any software acquired via the subscription removed) or upgrades will need to be purchased. Volume upgrades cost between US$147 and US$187, depending on volume.

Typically, only a few, older computers will fall into the gap between the end of the subscription and the end of their useful life; organizations can preserve much of their investment if they upgrade those computers to Windows 7 Professional through a volume program and attach SA subscriptions to the upgrade licenses. Then when the computers are retired, the SA can be moved to their replacements, potentially enabling an upgrade to a future OS, such as Windows 8.

As in other volume licensing plans, virtualization rights gained via SA disappear at the end of the subscription. This will not be a serious problem for organizations that see VMs as a temporary stopgap for applications that have not been upgraded to Windows 7. The subscription gives the organization three years in which to replace, rewrite, or update incompatible applications. In addition, XP Mode, which does not require SA, can be employed as a continued stopgap for applications that require XP. However, this option lacks the centralized management and control that comes with the MED-V desktop virtualization technology, which requires ongoing SA coverage. Organizations that value the additional virtualization rights that come with SA can renew their subscription agreement to keep using them.

Note that the value of the subscription as an OS-standardization tactic declines over time. In spring 2010, organizations that do not already have SA on their Windows OS may have few or no PCs licensed for Windows 7, and the subscription upgrade will benefit most or all of their current PCs. As time goes on and they acquire more new computers with Windows 7, the subscription offers no upgrade benefit on those computers (although SA benefits such as virtualization rights may be useful).

Selective SA and Upgrades

While Windows 7 has many valuable benefits, a hard-nosed analysis of an organization’s requirements may reveal that few users really need them.

In addition, OS standardization is not a universally accepted norm. About half of Microsoft’s enterprise customers do not include Windows in their EAs, preferring to do incremental OS upgrades via the OEM channel. These customers can purchase SA selectively as they replace older computers, and thus deliver the full stack of OS features to the subset of users who will actually deploy them.

For example, while VMs are valuable for running legacy applications that perform poorly on Windows 7, an organization may find that XP Mode satisfies 70% of those requirements at no additional cost. Similarly, important Windows 7 Enterprise features such as BitLocker and Direct Access offer little value to employees using desktop computers behind the organizational firewall in secure facilities.

By identifying users (such as those with portable computers or those who need to run two or more VMs simultaneously) who can benefit from Windows 7 Enterprise and SA rights, an organization can use the Select and Open License volume purchase plans, which let the organization purchase SA selectively, in contrast to EAs and Open Value plans, which require it for all computers in an organization.

Each of these plans offers specific advantages.

Open License is often ignored by enterprises because it is primarily intended for small companies. Yet, in many cases, it is the least expensive way for even an enterprise to gain access to SA benefits and entitlements for users who need them. First, although SA must be purchased for three years in many agreements, it is always purchased for two years in Open, offering an immediate 33% savings. While Open discounts are not as good as those in other programs, the shorter SA subscription makes Open pricing very competitive. Two years of SA purchased through Open License costs US$108, while three years of SA at the best EA discount level costs between US$117 and US$123 when OS licensing is first added to an EA.

Select agreements offer better discounts than Open and, under some circumstances, offer the lowest SA prices. This is because Select customers purchase SA for the current and remaining years in their agreement, rather than for a full three years. Thus, a customer who purchases a new PC and adds SA to it through a Select agreement would pay as little as US$86 for two years of SA, and only US$43 for one year—long enough to get permanent rights to Windows 7 Enterprise. The recently introduced Select Plus program always requires three years of SA payments and will be useful for organizations that want to employ SA benefits, such as virtualization or DOP components, for a subset of their organization over a longer period of time.

Directions estimates that an organization with 8,000 PCs that purchased SA on every new PC would pay about US$650,000 via Open License and about US$600,000 through a Select agreement over a three-year period, covering replacing 2,000 PCs each year.

Do Nothing

Organizations may find that most of their OS requirements can be met by OEM licensing alone. These organizations can tolerate multiple desktop OSs, upgrade their OS only when they replace PCs, and do not plan significant use of VMs or Windows 7 Enterprise features.

As an organization replaces computers, it can target advanced or mobile users by purchasing new PCs with OEM licenses for Windows 7 Ultimate, which offers the Windows 7 Enterprise feature set at a price that few volume licensing options can match. Similarly, XP Mode can handle the requirements for at least a limited subset of applications and users who need access to legacy applications.

In addition, until the first Windows 7 service pack is released (expected by the end of 2010), OEM Windows 7 Professional licenses are eligible for downgrades to XP. Computers downgraded in this way retain their Windows 7 Professional license rights, so once legacy applications have been discarded or updated and XP is no longer required, these computers can revert to Windows 7 Professional images.