Windows Server Licensing Models
Introduction: Microsoft Windows Server licensing can be complex, with multiple models and considerations that IT leaders must navigate. This article provides a high-level overview of how Windows Server is licensed, covering the primary licensing models, editions, and key concepts such as core-based licensing and Client Access Licenses (CALs).
Understanding these models is essential for software asset managers (SAM professionals), CIOs, and procurement teams to ensure compliance and cost-effectiveness.
Read more about Microsoft Windows Server Licensing.
Core-Based Licensing and Editions
Core-Based Licensing: Since Windows Server 2016, Microsoft has used a core-based licensing model (replacing the older per-processor model) for its main editions. Under this model, each physical core on the server must be licensed.
Licenses are sold in packs (typically 2-core packs, with optional 16-core packs for convenience). Microsoft requires a minimum of 16 cores per server (even if the server has fewer cores) and at least eight cores per physical CPU.
In practice, even a small single-socket server (e.g., 1 CPU with four cores) needs 16 core licenses to be compliant. Once all required cores are licensed, that server’s Windows Server OS is covered for use on that hardware.
This core-based approach provides consistency across different hardware sizes and aligns with cloud licensing practices.
Standard vs. Datacenter Edition: The two primary Windows Server editions for businesses are Standard and Datacenter. Both use the core-based model and require CALs for user or device access (discussed below).
The key difference is in virtualization rights:
- Standard Edition allows up to two Windows Server virtual machines (VMs) to run on a fully licensed host (i.e., all cores licensed), plus one instance on the physical host (the physical instance is typically only used to run the Hyper-V role to manage VMs). Suppose more than two VMs are needed on one host. In that case, you can “stack” Standard licenses: essentially purchase another set of core licenses (another 16 cores, at minimum) for the same server to license two additional VMs. For example, if a server with 20 cores needs to run 6 Windows Server VMs, you would license those 20 cores three times (3 × 20 cores) to cover 6 VMs. Beyond a certain point, stacking multiple Standard licenses becomes inefficient. If you must stack Standard edition more than twice on the same server (i.e., more than 4 VMs on one host), stepping up to the Datacenter edition is usually more cost-effective.
- Datacenter Edition allows unlimited Windows Server VMs on a fully licensed host (all physical cores licensed with Datacenter). In the example above, licensing the 20-core server with a Datacenter license once covers as many VMs as you need on that one machine. This makes Datacenter ideal for highly virtualized or cloud-like environments. Although Datacenter is more expensive per core, it can scale VMs without needing additional licenses on that host.
Standard is suited for low-density or non-virtualized scenarios, whereas Datacenter is designed for dense virtualization or private cloud workloads. Both editions include the full Windows Server functionality; the difference is purely the virtualization use rights (and some advanced features exclusive to Datacenter, such as software-defined datacenter features, in newer versions).
Other Editions: In addition to Standard and Datacenter, Microsoft offers a few specialized editions:
- Essentials Edition – Aimed at small organizations, Windows Server Essentials (available in versions up through 2022) is licensed differently. It is typically an OEM-only SKU tied to a single server with a single CPU (up to 10 cores). Essentials does not require CALs for access; instead, it allows up to 25 named users (and 50 devices) to access the server without additional licenses. This makes it a simple all-in-one license for small businesses. However, it has limitations: it cannot be expanded beyond 25 users, and technically, it runs the Standard edition binaries with an enforced limit (the server will enforce the user limit and shut down if exceeded). Essentials is suited for very small offices and has no virtualization rights (the license covers one instance of Windows Server running on the hardware). Windows Server 2022 Essentials is only available through OEM channels (bundled with new server hardware).
- Azure Edition – Microsoft introduced “Datacenter: Azure Edition,” a special variant of Windows Server (available in Windows Server 2022 and beyond) intended to run in Azure or Azure Stack environments. It includes certain cloud-oriented features (like Hotpatch) and is only available in Azure or to customers with Software Assurance in specific scenarios. This edition is not purchased traditionally for on-premises use; it’s an Azure-provided benefit for hybrid use cases (we will discuss Azure benefits in a later article).
- Microsoft previously offered Foundation or Storage Server editions in older, deprecated versions. The main editions in the current model remain Standard, Datacenter, and the limited-use Essentials. There is also a free Hyper-V Server (a standalone hypervisor) in older versions, but Microsoft discontinued the free Hyper-V Server after Windows Server 2019. In Windows Server 2022, if you need a lightweight host solely for VMs, you would install the Standard/Datacenter in core mode or consider Azure Stack HCI (a separate product) – but that goes beyond the scope of Windows Server licensing models.
Read Windows Server Core-Based Licensing Mechanics.
Client Access Licenses (CALs)
Purchasing a Windows Server license (whether Standard or Datacenter) covers the server installation, but users or devices require separate licenses to access the server.
This is the Client Access License model that has long been a part of Windows Server licensing:
- What is a CAL? A Windows Server CAL is a license that permits one user or device to legally access the services of the Windows Server. CALs are additive to the server license: if you have deployed a Windows Server for use by end users, you must ensure each user or device has an appropriate CAL (unless an exception applies). CALs are version-specific (a CAL for Windows Server 2019 also covers access to 2019 or earlier, but not newer versions). CALs are not needed for every piece of software on the server – they specifically cover access to the Windows Server OS services (such as file sharing, Active Directory authentication, print services, etc.).
- User CAL vs Device CAL: There are two types of CALs, and organizations can choose the mix that suits their scenario (it’s common to choose one type exclusively for simplicity). A User CAL licenses one named user to access Windows Server from any device. This is ideal if employees use multiple devices (desktop, laptop, tablet, phone – the single user’s CAL covers all their access). A Device CAL licenses one device for access by any number of users. This can be cost-effective in scenarios like shift work or kiosk stations where multiple individuals use the same shared machine – one Device CAL on that PC covers any user. You can have a mix of user and device CALs in your environment; however, you cannot double-count or interchange them (each user or device needs one CAL of one type). Choosing one CAL type based on your predominant usage pattern is often recommended to simplify management. Periodic reviews are wise – for instance, if you initially purchased Device CALs. Still, over time, employees use more personal devices, switching to User CALs might save money (or vice versa).
- CAL Exceptions: Not every scenario requires CALs. Notably, external users (not employees or on-site contractors of the organization) can be covered by an External Connector license instead of individual CALs. An External Connector is a server-based license that, when assigned to a server, allows unlimited external (non-employee) users to access that server’s services. This is commonly used for public-facing servers (e.g., a web server or customer portal) where issuing individual CALs to each customer is impractical. Only one External Connector is needed per server (not per user). It’s important to note that external connectors are typically cost-effective only when you have large numbers of external users; otherwise, for a small number of partners or external users, individual CALs might be cheaper if those external users can be counted. Additionally, no CALs are required if a Windows Server is used purely as a back-end for other servers or non-user workloads. For example, suppose you have a Windows Server acting solely as a virtualization host (running Hyper-V and not providing any file, print, or authentication services to users). In that case, you do not need CALs for that host usage. Similarly, if a Windows Server is used in a web workload accessible anonymously online, Microsoft’s product terms exempt the need for CALs (this covers public web servers). And in some high-performance computing (HPC) scenarios or cluster scenarios, CAL requirements may be waived when the usage is restricted to computational tasks with no user directly logging in. Always check the Product Terms for specifics on such exceptions.
- Other Microsoft CALs: Remember that CALs discussed here are specifically Windows Server CALs (sometimes called “Base CALs”). Other server products (like Exchange Server, SQL Server, or Remote Desktop Services) have their own CALs. For instance, if you use Windows Server’s Remote Desktop Services (RDS) for VDI or remote app access, you need additional RDS CALs (on top of the base CALs) for those users or devices. We won’t dive into those here, but be aware that using certain features may trigger the need for additional CALs (e.g., RDS CAL, Active Directory Rights Management Services CAL, etc.). The key takeaway: CALs are a critical part of Windows Server licensing – budget for them and track them just as closely as server licenses.
Evolving Licensing Models (Per-Core vs. Per-Processor)
It’s worth noting the evolution of Windows Server licensing models. Before 2016, Windows Server was licensed per-processor (per CPU), meaning one license covered up to two CPUs on a server.
As CPU core counts increased and cloud computing rose, Microsoft moved to the per-core model to better align licensing with actual performance and to be consistent across on-premises and cloud. The per-core model is now standard for Windows Server (and SQL Server, another major Microsoft server product).
For completeness, very old versions of Windows Server had other models (e.g., Windows Server 2003 had per-server or per-seat client licensing modes), but those are legacy. Today, any modern deployment will deal with core-based server licensing plus CALs as described above.
Microsoft also introduced subscription licensing options in recent years (for example, Windows Server subscriptions via CSP or Azure-based licensing). These don’t change the core metric (they still count cores and require CALs) but offer different ways to purchase and use licenses. We’ll explore those in later articles on licensing programs and hybrid cloud.
Common Licensing Pitfalls to Avoid
Even seasoned IT professionals can run into compliance issues or overspend if they misunderstand the licensing models.
Here are some common pitfalls and mistakes related to Windows Server licensing:
- Under-licensing cores: Forgetting the 16-core minimum or not licensing all physical cores on a server is a frequent error. For example, if you have a server with 12 cores but only bought six 2-core packs (12 cores worth of licenses), you would still be under-licensed because of the 16-core minimum requirement. Always ensure at least 16 cores are licensed per server (and 8 per CPU), regardless of lower actual counts. Also, double-check new hardware purchases – if you upgrade a server with more CPUs or cores, you must adjust your licenses accordingly.
- Over-stacking Standard edition: As mentioned, using Standard edition in heavily virtualized scenarios can quickly become more expensive than Datacenter. A common scenario is an organization trying to save money by buying standard licenses and adding more as VMs grow. If you find you are stacking Standard licenses beyond two sets (covering >4 VMs on one host), step back and calculate the breakeven point with the Datacenter edition. Often, Datacenter will reduce complexity and cost if you need a lot of VMs on a host. In essence, don’t try to make Standard edition do the job of Datacenter beyond its economical limits – it’s better to switch to Datacenter if your virtualization needs have grown.
- Ignoring CAL requirements: Focusing on the server licenses and forgetting about CALs is easy, especially during budget planning. However, failing to account for CALs can leave you out of compliance and potentially cause you to face audit penalties. Every internal user or device accessing a Windows Server needs a CAL (unless covered by an exception or a bundled license such as a Microsoft 365 suite that might include Windows Server CAL rights). Ensure to include CAL purchases in your project budgets when you deploy a new Windows Server with additional users. Also, maintain an inventory of your CALs – they often get less tracking attention than server licenses, but they are equally important in an audit.
- Choosing the wrong CAL type: As discussed, the choice of user vs. device CAL can impact cost. An organization might default to one or the other without analysis and over-licensing. For instance, buying device CALs in an environment where users have 3–4 devices means buying 3–4× the CALs needed (you’d be better off with one CAL per user). Conversely, a factory with shared stations might waste money buying user CALs for each employee when a smaller number of device CALs would suffice. It’s a good practice to review your CAL strategy periodically (e.g., annually or when there’s a major change in workforce or device policies).
- Misunderstanding license reassignment: Windows Server licenses (without Software Assurance) are generally assigned to a physical server and cannot be moved to another server more often than every 90 days. This means you can’t freely shuffle licenses around a server farm on a whim. If you retire hardware or move workloads, you must plan license reassignments carefully (or invest in Software Assurance, which can provide more flexibility in certain cases). Many compliance findings involve organizations dynamically moving VMs for high availability or load balancing without realizing they are out of compliance if the underlying hosts aren’t fully licensed.
Recommendations
- Assess Your Environment Needs: Start by understanding your usage—how many physical servers, cores, and VMs you run. Based on virtualization density, map out whether the Standard or Datacenter edition makes sense for each host. A low-virtualization environment can save costs with the Standard edition, whereas a highly virtualized datacenter should budget for Datacenter licenses.
- Don’t Forget CALs: Ensure you have a process for tracking and budgeting for Client Access Licenses. Determine whether User CALs or Device CALs (or a mix) are most cost-effective, and revisit that decision if your user-to-device ratios change. If you provide services to external users, remember to license those either via the External Connector or another appropriate method.
- Stay Compliant with Core Counts: Always license all physical cores of each server (subject to the eight cores per CPU / 16 per server minimum). Document your hardware configuration and match your license purchases accordingly. If you upgrade server hardware (e.g., adding processors), include licensing in the change management to remain compliant post-upgrade.
- Leverage Appropriate Editions: Use specialized editions where they fit – for a very small business environment, an Essentials edition server (with its 25-user limit) might be a cost-effective solution without CAL overhead. Conversely, avoid trying to use multiple Essentials or numerous Standard licenses in ways that strain their intended use – that’s usually a sign you need to move to Datacenter or another solution.
- Consult Expert Advice: Because Windows Server licensing is intricate and Microsoft’s rules evolve, engaging independent licensing expertise is wise. Consider consulting an experienced software licensing advisor (for example, Redress Compliance or similar independent specialists) to review your licensing strategy. They can provide vendor-neutral guidance to optimize costs and ensure compliance, especially if your organization’s IT environment or Microsoft agreements are complex.
