On the eve of Microsoft's blowout virtualization launch today in Seattle, Bob Muglia, SVP of the Server and Tools Business at Microsoft talked with CIO.com writer Kevin Fogarty about OS licenses and the competitive situation with VMware, which is holding its big customer event, VMworld, next week. Q: Some people called it a half measure when Microsoft announced in August it had changed the licensing rules to let applications shift more easily from one virtual machine to another. Have you thought about changing the OS licenses to allow the OS within a virtual machine to be shifted as well, without requiring an open OS license on both the originating and the destination machine? Muglia: I think we've already done that, and we did it two years ago. We realized that virtualization changed the way we needed to license our software, and we implemented a set of license changes throughout the server product line, but we started with Windows Server. We structure our licenses so customers have the right to run a different number of instances of the operating system based on the edition they use. With Standard Edition they can run one virtualized instance. In the case of Enterprise they're allowed to run four virtualized instances, and the Data Center edition provides unlimited virtualized instances. So we've really structured out licenses to be friendly and focused on virtualization. Q: What about making it easier to package the OS and application rather than tying the OS license to a physical server? Muglia: You've got to connect a license to something, and we looked at all the things to connect it to. The way customers use virtualized instances is they create images of operation systems and applications together and then they store those images in some form, then they move those things around and load them on physical devices. The one thing people have been able to count is the physical devices, the servers themselves, so our licenses are connected to our devices, and customers are absolutely free to move an image from one device to another as often as they want. There's no limit on that. It's just that the number on the server indicates the number of licenses of virtualization they're allowed to run. Q: Do you ever see licensing an OS without requiring a link to a specific physical server? Muglia: It's tough, and I'll never say never. But what we find is that customers need to be able to count something, and the one thing they're able to count on for sure in the server world is the number of servers they've got. So it still seems like the best approach to us. Q: How do you compare the competitive position of Microsoft and VMware compared to earlier competitions, like NT vs. Novell's NetWare, or Exchange vs. IBM's notes. Is Microsoft in a stronger position in virtualization than it was in those situations? Muglia: I did NT way back when we were in that Novell situation when Novell had a very strong market position and was also involved in Exchange in the very early days. And one thing I think is very different in a sense in virtualization is that it's very early in the marketplace. I think we actually have a very competitive offering in the marketplace at a very early stage. We're still in a world where roughly 12 percent of servers are virtualized and we see ourselves in a world in five or ten years where that number is going to be well over 50 percent and ultimately will be ubuquitous. The product we have is extremely competitive in the market, certainly compared to how competitive those early NT products were in the market relative to NetWare, I remember that very well. Q: What about the resentment that a lot of VMware customers have expressed about Microsoft and the potential that its success will damage VMware as a company and the investment customers have made in its software?Muglia: First and foremost I think customers make rational business decisions. Vmware has been the only game in town if companies wanted to take advantage of the benefits that virtualization provides in their mainline business systems. Ultimately what I think happens is that as business moves forward and people look at new opportunities in the market, there's now an environment that there are some great choices that customers can make [with Hyper-V and Virtual Machine Manager 2008 and Systems Center]. And there certainly are areas where customers will continue to choose VMware and I'm sure that marketplace will move forward. On the other hand, we'll have an offering in the market that is rock solid technically, that performs at the same level as ESX, provides a broader set of management capabilities, including VMware in addition to the Microsoft environment, it is completely based on Windows and all the skill sets that Windows administrators know and it will be about a third of the price that VMware offers. And in that sort of environment, we expect a lot of customers going forward to make the rational choice and choose the Microsoft offering.