Microsoft has unveiled plans to change the licensing structure of its Windows Server 2003 software.

Effective from 1 December 2005, organisations running Windows Server 2003 'Release 2' (R2) will be allowed to run up to four instances of the software on one physical server.

R2 is a free upgrade of the server operating system which is scheduled for availability later this year.

The next version, codenamed Windows Server Longhorn Datacenter Edition, will allow for an unlimited number of instances of the software to run on a single server.

The software is currently in beta and Microsoft has not yet announced a projected release date for the product.

Microsoft hopes that the licensing change will encourage organisations to use its Virtual Server virtualisation technology.

"We wanted our licensing to allow customers to embrace virtualisation benefits and eliminate any potential barriers," said Brent Callinicos, Microsoft's corporate vice president for worldwide licensing and pricing. 

"As a result, we have devised licensing policies that we feel best reflect how our customers want to use this virtualisation technology."

Virtualisation allows organisations to run multiple operating systems on a single server, with each operating system running independently from the others.

The technology is used for server consolidation, to test new software and to meet peak demands for computing capacity by moving applications between physical servers.

Current licensing terms hold back the adoption of virtualisation because they require users to pay for each instance of the application that is running.

This could increase the software licensing cost, for instance when organisations choose to store a spare copy of a virtual server to occasionally meet peak demands or for backup and recovery purposes.

In addition to allowing four instances of the software to run at the same time, the new licence allows organisations to store an unlimited number of inactive instances of the operating system.

Microsoft now also allows users to move instances between servers without extra charges.

The software vendor has also updated licensing terms for its applications running on Windows Server 2003, including SQL Server, BizTalk Server and Internet Security Accelerator Server.

Instead of purchasing a licence based on the number of physical processors in a system, as is common today, the new structure will charge users based on the number of virtual processors.

Microsoft has been one of the most responsive vendors in the industry in adapting its licensing structure to trends in multi-core processors and virtualisation.

The company changed its licensing terms for multi-core processors last year, charging per physical processor rather than per processor core.

Oracle, on the other hand, has resisted making changes to its licensing structure. Facing pressure from competitors and customers, the database vendor finally settled on counting each processor core as 0.75 physical processors.

A database running on a single server with one quadruple-core processor would therefore require three processor licences. Fractions are rounded up, so a dual-core processor still requires two licences.