From the March 2006 issue of Entrepreneur

Software licensing compliance has never been the most cut and dried subject. It's important for growing businesses to stay on top of their licensing requirements and avoid penalties for noncompliance. Be ready for some interesting new changes in server licensing, thanks to recent moves by Microsoft. Growing businesses that find themselves on the more complex end of servers and networking should especially take heed of the new licensing model.

Most changes hinge on virtualization. Virtualization software (like Microsoft's Virtual Server) is gaining popularity as a way to reduce the number of servers a business needs to handle its workload.

Using such software, a single server can run multiple operating systems (or multiple instances of the OS) more efficiency, giving you more bang for your buck. All this causes problems when you look at the old per-processor licensing of server software. But Microsoft now calculates licensing based on the number of instances of a program running, rather than on the number of physical processors connected to a server, so you don't have to puchase licenses for every computer.

Jason Sango, director of IT portfolio management solutions with IT consultancy Forsythe Solutions Group, expects the changes to affect businesses positively. "Small and midsize businesses are much better positioned to realize the promise and savings associated with server consolidation and mixed workload scenarios, along with reduced hardware and administration requirements," he says. Sango expects Microsoft's moves to cause other software vendors to re-evaluate their own policies. He suggests it could provide businesses with a strong reference point when negotiating software licensing deals with other vendors.