Why Microsoft is sabotaging desktop virtualization

Analysis: Microsoft's licensing makes VDI unaffordable, to keep its stranglehold on desktop Windows licenses intact

As they say, everything old is new again. The emergence of virtualization as a widely accepted computing platform has moved us that much closer to the age-old concept of centralized server-based computing that originated with the first mainframes in the 1970s. Although server virtualization has gained a sizable foothold in the Intel-based server market, the desktop market has not seen such advances. There are many reasons for this, including technology limitations that are only now being worked out, but a key one is the hostility to virtual desktop infrastructure (VDI) by Microsoft, as expressed in its Windows software license restrictions.

[ InfoWorld's Paul Venezia argues that VDI's future is in doubt due to a perfect storm of trends working against it. | Randall C. Kennedy asks, "Has VMware lost its virtualization mojo?" | InfoWorld Test Center reviews: Citrix XenDesktop, Microsoft Hyper-V, and VMware VI3. ]

The licensing agreements for Windows 2000 Professional and Windows XP Professional never allowed for the virtualization of these products. That didn't keep some enterprises from doing it anyway, nor, to my knowledge, has Microsoft ever held any of these early adopters' feet to the fire over this issue. Perhaps because threatening a customer that has legally purchased a few thousand licenses of your product and used them in a way you didn't foresee doesn't make the best business sense.

Microsoft's licensing rules for VDI cost you more
But that benign neglect of its anti-VDI licensing provision changed about two years ago with the release of the Vista Enterprise Centralized Desktop (VECD) licensing scheme. The original release of this new licensing scheme hit the market with a combination of profound confusion and outcry. So much so that the terms and pricing were slightly modified about six months ago. The current licensing scheme can be boiled down to two different options:

  1. If you're connecting to your VDI environment from a Vista-licensed PC already covered by Microsoft's annual Software Assurance plan, you must purchase a Windows VECD for Software Assurance license.
  2. If you're connecting to your VDI environment from a thin client or a workstation that is not covered under Software Assurance, you purchase a Windows VECD license.

Both licenses give a user sitting at the licensed client device the right to run and/or connect to up to four virtualized instances of Microsoft Vista (or XP/2000 if you exercise your "downgrade" rights). Those virtualized instances can run on the client device or be centrally hosted -- it doesn't matter where they are stored or how the virtualization itself is accomplished. The important thing is that you're licensing the client device in whatever form that might take, not the VMs themselves.

But here's the rub: VECD licensing is only available as a subscription through Microsoft's Open Value and Select licensing programs. And it's not cheap. Presumably, most VDI implementations will use some form of diskless thin client. The current pricing for this option is about $110 per year (marginally less if you have a level B/C/D Select agreement). Compare that against the roughly $125 you might pay for a perpetual OEM license of Vista Business included in a new PC from Dell or Hewlett-Packard. Granted, that OEM license is significantly less flexible than a VECD license; OEM licenses are nontransferrable and don't include Software Assurance, so you'll have to pay to upgrade to Windows 7 or buy a new Windows license if you change out the PC.

Most enterprise desktop workstations seem to remain in service for about three years before they're replaced. If you purchase a desktop PC with an OEM license for Vista Business, you'll pay around $100 to $125 for the privilege. (It's hard to tell exactly how much because the amount Microsoft charges large business PC OEMs through its System Builder channel isn't public, but I suspect it's somewhere around there.) If you decide to implement VDI and use a thin client to access it, you'll spend about $330 for the same three years.

There's no other way to cut this: It's simply way more expensive to license a Windows desktop OS for a VDI environment than it is to license one for a physical environment. Even if you upgrade to a new major OS revision during those three years by taking advantage of the Software Assurance plan included in VECD, you're still paying more than you would if you did the same thing with a desktop client.

VDI is good for enterprises, but not for Microsoft
So the question is, Why does Microsoft sabotage VDI? The reason is pretty clear: Virtual machines can live forever. By its very nature, virtualization abstracts the hardware from the operating system. You can upgrade your virtualization hosts many times without needing to change your virtualized guests at all. If you're feeling particularly masochistic, you can even run Windows 3.1 on your brand-new Nehalem box. It's no secret that the last desktop operating system upgrade cycle has not gone particularly well for Microsoft. A huge percentage of enterprise customers are still running Windows XP whether or not they actually own Vista licenses. One of the only things saving Microsoft from a huge drop in desktop OS revenue here is the OEM license.

While a business might have decided to run Windows XP for the past seven or eight years without upgrading, the desktop hardware that was originally installed has been replaced one or two times. In most cases, this means Microsoft has sold you one or two more OEM desktop licenses with your new hardware, even if you're not using them to run Vista. If Microsoft's Windows XP licensing agreement had allowed it to be virtualized and VDI had been mature in 2001, you could be running the same full XP license today that you bought then without spending a penny on additional operating system licensing in the meantime. That's obviously not good for Microsoft, and VECD is its answer to prevent this from happening in the future.

Unless some considerable market pressure is exerted on Microsoft, this higher VDI pricing will serve to deter some customers from implementing VDI. The higher Microsoft licensing costs alone (about $200 per desktop every three years) often make VDI look unattractive in a cost-benefit analysis. Sure, Microsoft will pretend to recommend the technology, such as through its listing of Citrix XenDesktop combined with Hyper-V as it recommended VDI solution, but at the same time the company does not really recommend VDI at all.

Of course, this VDI aversion will change as soon as Microsoft has its own native VDI capability. Once it does, I expect the current anti-VDI pricing to magically decrease. Perhaps that's cynical, but it certainly seems logical. If there were some way for Microsoft to charge twice as much for server licenses run on non-Microsoft hypervisors without encountering antitrust laws, I have to imagine the company would do that, too.

However, the really interesting thing about this is that Microsoft has been selling its desktop operating system as a subscription for nearly two years, but it doesn't appear that anyone outside of the VDI space has really given it a whole lot of thought. Is it so outlandish to assume that all of Microsoft's products might eventually end up as subscriptions? If the Vista upgrade debacle repeats itself, big deal -- Microsoft is still getting its pound of flesh whether or not you use the new stuff.

No matter what happens on the subscription front, VECD will continue to be a thorn in the sides of those recommending or implementing VDI.

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