BYOL vs. Licence-Included: Two Paths to the Cloud
Cloud providers offer two main ways to licence Microsoft software in their environments. Understanding which model applies — and when — is the foundation of cloud licensing compliance.
The cloud provider includes the Microsoft licence cost in the hourly VM price. When you launch a Windows Server VM with "Licence Included," you pay a higher per-hour rate that covers the OS licence. Simple — no existing licences needed, and the provider handles Microsoft payments.
May be required in certain cases due to Microsoft's licensing rules (e.g., Windows Server on shared AWS/GCP infrastructure without SA).
You take existing licences from on-prem volume licensing agreements (with Software Assurance) and apply them to cloud instances. The VM is billed at a lower "base" compute rate because you're not paying the licence markup.
Microsoft enables this on Azure via Azure Hybrid Benefit. Other clouds allow it for certain products under License Mobility rules, with significant restrictions.
The choice depends on: Whether you have existing licences with active SA, the cost difference between BYOL and licence-included rates, and Microsoft's rules about licence portability to each specific cloud provider. Azure Hybrid Benefit can deliver 30–50% savings on Azure's rates for Windows Server and SQL Server.
As expected, Microsoft Azure offers the most straightforward options for migrating Microsoft licences.
Azure Hybrid Benefit (AHB): Use on-prem licences for Windows Server, SQL Server, and other products in Azure — avoiding double-paying. For Windows Server Datacenter with SA, licences can be assigned to Azure VMs (with 180 days of simultaneous on-prem use during migration). For SQL Server, AHB yields up to 30–50% cost savings on Azure's rates.
Unlimited Virtualisation on Azure: SQL Server Enterprise with SA and AHB allows unlimited SQL instances on Azure Dedicated Hosts or certain VM scenarios — analogous to on-prem unlimited virtualisation rights. Azure is essentially an extension of your SA rights.
Azure Dedicated Host: An entire physical server dedicated to you. Useful for BYOL because it satisfies licensing requirements for products that normally can't run on shared cloud hardware. Microsoft treats it as on-prem hardware from a licensing perspective — you can bring older licences or those without SA.
No License Mobility Needed: On Azure, Microsoft allows standard licence assignments via AHB — more permissive than any other cloud. Some Azure services (like Azure Virtual Desktop) have unique licensing arrangements with Microsoft 365 licences.
AWS and GCP are third-party clouds from Microsoft's perspective. Since 2019, Microsoft's "Listed Provider" rules impose significant restrictions on using licences on these platforms.
License Mobility with SA: Certain server products (SQL Server, Exchange, SharePoint) can move to AWS/GCP shared infrastructure if you have active Software Assurance. You must ensure the product is eligible (listed in Product Terms), maintain SA, and often submit a verification form to Microsoft. Windows Server is NOT eligible for License Mobility.
Windows Server on AWS/GCP: In 2019, Microsoft changed terms to prevent customers bringing perpetual Windows Server licences to AWS, GCP, or Alibaba unless on dedicated hardware. Two options: (1) use the cloud provider's licence-included VMs, or (2) BYOL on dedicated host offerings (sole tenancy of physical servers). Most AWS/GCP users use licence-included images for Windows Server.
SQL Server on AWS/GCP: Can be BYOL on shared infrastructure with SA (via License Mobility). AWS has BYOL AMIs for SQL Server. Without SA, or for SQL Enterprise unlimited virtualisation, you need dedicated hosts. AWS also offers SQL licence-included instances — compare costs, as hourly charges for SQL Enterprise can be high.
Other Microsoft Products: SharePoint, Exchange, Dynamics CRM — generally usable on AWS/GCP VMs via License Mobility with SA. Office client applications cannot be BYOL to cloud VMs except under specific programmes. Microsoft doesn't allow volume-licensed Office on AWS/GCP unless on dedicated hardware.
The "Listed Provider" restriction is the single most important cloud licensing rule. Since October 2019, AWS, GCP, and Alibaba are specifically named as restricted. Perpetual Windows Server licences cannot be deployed on their shared multi-tenant infrastructure. Only dedicated hosts or licence-included pricing are compliant options. Smaller cloud providers may qualify for Microsoft's "Flexible Virtualisation" benefit — but the three major competitors do not.
Cloud BYOL Comparison: Azure vs AWS vs GCP
| Product / Right | Azure | AWS | GCP |
|---|---|---|---|
| Windows Server BYOL (shared) | ✅ Yes — via AHB | ❌ No — dedicated only | ❌ No — dedicated only |
| Windows Server BYOL (dedicated) | ✅ Yes | ✅ Yes — Dedicated Hosts | ✅ Yes — Sole-Tenant Nodes |
| SQL Server BYOL (shared, with SA) | ✅ Yes — via AHB | ✅ Yes — License Mobility | ✅ Yes — License Mobility |
| SQL Enterprise unlimited virt. | ✅ Yes — Dedicated Host | ⚠️ Dedicated Hosts only | ⚠️ Sole-Tenant only |
| 180-day dual-use rights | ✅ Yes — AHB migration | ❌ No blanket allowance | ❌ No blanket allowance |
| Free Extended Security Updates | ✅ Yes — 2012/2014 ESUs | ❌ Must purchase ESUs | ❌ Must purchase ESUs |
| Office apps BYOL | ⚠️ Azure VD / M365 only | ❌ Not on shared infra | ❌ Not on shared infra |
| License Mobility form required | Not required | Required for SQL BYOL | Required for SQL BYOL |
Understand the server licensing fundamentals first
Windows Server & SQL Guide →Cloud Licensing Pitfalls
Double Licensing — Paying Twice
Moving a workload to Azure and forgetting to apply Azure Hybrid Benefit means paying full VM price (including a Windows licence) while owning unused on-prem licences. On AWS, leaving licence-included pricing active while having usable BYOL licences on a dedicated host.
Solution: Inventory existing licences before migration. Have a clear plan for which will be repurposed via AHB, License Mobility, etc. Ensure cloud administrators know how to select BYOL options. Azure VMs are ~40–50% cheaper with AHB for Windows/SQL.
Non-Compliance by Misinterpreting BYOL Rights
Using licences in the cloud without proper rights is a compliance risk. Common: deploying Windows Server Standard without SA on AWS shared VMs (not allowed), or using Office 365 ProPlus on AWS WorkSpaces (currently only permitted on Azure or dedicated infrastructure).
Solution: Consult Microsoft's Product Terms for "Outsourcing Software Management" rights. Microsoft's "Listed Providers" concept means AWS, GCP, and Alibaba are more restricted than smaller hosters. When in doubt, err on caution or engage licensing experts.
Not Using Cloud-Native Alternatives
Direct BYOL of a traditional server product to a cloud VM might not be optimal. Instead of a Windows Server file server VM in Azure, consider Azure Files or SharePoint Online (licensing included in service fees). Instead of SQL Server VM on AWS, consider AWS RDS for SQL (licence included).
Solution: Evaluate if cloud-native PaaS services could replace VM workloads. Many Azure services shift you away from managing licences entirely — you pay for the service, Microsoft handles licensing internally. This can eliminate BYOL headaches.
Strategic Considerations: Azure vs AWS/GCP
Microsoft has structured licensing to make Azure the most attractive destination for existing Microsoft licence holders.
Simultaneous Use During Migration
Azure Hybrid Benefit provides up to 180 days of dual-use rights — keep using on-prem servers while applying the licence to Azure during migration. AWS/GCP has no such blanket allowance. If BYOL'ing to AWS, you're technically supposed to cease on-prem use.
Free Extended Security Updates (ESUs)
Microsoft offers free ESUs for end-of-support products (Windows Server 2012, SQL Server 2012) running in Azure. On AWS/GCP, you must pay for ESUs separately. This heavily influences costs for legacy server migrations.
"Listed Provider" Restrictions Remain
Microsoft's 2022 "Flexible Virtualisation" benefit allows certain smaller hosting partners to offer BYOL on shared infrastructure — but AWS, GCP, and Alibaba are explicitly excluded. The three major competitors remain under the old, more restrictive rules.
Licensing Economics Drive Cloud Choice
Many organisations choose their primary cloud provider partly due to licensing economics. A common conclusion: "We went with Azure for Windows/SQL workloads because our EA and Hybrid Benefits made it 30% cheaper than AWS." Factor licensing into every cloud decision.
Practical Tips for Cloud Migration
Inventory and Tag Your Licences
Before migrating, list all licences (Windows, SQL, RDS, etc.), their versions, and whether they have Software Assurance or are subscription-based (like M365 E5 which may include server rights). This dictates if and how licences can be used in the cloud.
Decide Workload-by-Workload
For each server: IaaS VM or PaaS? BYOL or licence-included? Azure or AWS? Create a matrix covering each workload. You might move web servers to Azure with AHB, but database servers to AWS. Each decision involves different licensing approaches.
Take Advantage of Transition Periods
Microsoft permits overlapping use of licences when transitioning (especially with SA). Spin up Azure instances with AHB while still running on-prem during testing. Remember to retire on-prem use after the 180-day limit unless you purchase additional licences.
Cost Out Every Scenario
Compare: renewing SA (to BYOL on AWS) vs. AWS licence-included pricing vs. Azure with Hybrid Benefit. Use pricing calculators from Azure and AWS, factor in existing entitlements. Sometimes buying new licences via cloud subscription is cheaper long-term than porting expensive legacy licences.
Monitor and Adjust Continuously
Cloud environments are dynamic — new VMs and services appear over time. Make licence governance part of cloud management. A misconfigured deployment (e.g., importing a Windows VHD to AWS assuming BYOL is fine on shared infrastructure) could violate licensing. Regularly audit cloud accounts.
Migrating Microsoft workloads to Azure, AWS, or GCP is not just a technical exercise — it's a licensing one. Azure offers the most licence flexibility, while AWS and GCP require careful navigation of BYOL rules. Before any migration, do a thorough licence assessment as part of your cloud readiness checklist.
📚 Related Reading
📂 Microsoft Licensing Case Studies
🔧 Microsoft Advisory Services
Need Help With Microsoft Cloud Migration Licensing?
Whether you need BYOL assessment, Azure Hybrid Benefit optimisation, multi-cloud licence strategy, EA renewal negotiation, or audit defence — our Microsoft licensing specialists deliver measurable savings and protect your interests as a fully independent advisor.
💡 Download our Microsoft licensing white papers
View White Papers →