I'm here to tell you that virtually everything you've read online about the changes to Windows Vista's end-user license agreement (EULA) is wrong. Microsoft is further limiting your rights to transfer Windows to new PCs? Wrong. Microsoft is limiting your ability to upgrade your PC? Wrong. Microsoft is limiting the Vista versions you can install in virtual machines? Well, that one is partially correct. But there's a reason.

Here's what's really happening.

Every version of Windows is accompanied by a EULA. This document is a contract that specifies your rights with regards to the copy of Windows you just obtained. The thing is, most people--over 90 percent--get Windows with a new PC, according to Microsoft. And their rights are substantially different from the rights of a customer who purchased Windows at retail. More specifically, versions of Windows that come with a new PC can't ever be transferred to another PC. They are, quite literally, bound to the PCs with which they were purchased. Retail copies of Windows... that's a bit different. But only a bit. We'll get to that.

What's happened is that Microsoft has clarified the EULA for Windows Vista. They've made it more readable, for starters, so normal people can get by the legalese and understand what the document really means. The Vista EULA is also clearer about certain things, including one of the supposedly controversial "changes" that the previously named online pundits are railing against. It also mentions virtualization licensing rights for the first time.

Here's what changed.

Windows transfer rights

There's a funny myth going around that says you have a right to transfer a single copy of Windows XP (or any previous Windows version) to as many computers as you like, as often as you like, and for any reason you like. This myth exists because the Windows XP EULA is vaguely worded. It states, "You may move [Windows XP] to a different Workstation Computer. After the transfer, you must completely remove [Windows XP] from the former Workstation Computer." Pundits argue, incorrectly, that this EULA implicitly allows any user to continually move a single copy of Windows XP from machine to machine as often as they'd like. One online pundit decided this meant that "there are no restrictions on the number of times you can transfer the software from one computer to another in your household or office." That person is, however, incorrect. As it turns out, the Windows license is pretty simple: Windows is tied to a single device (typically a PC), and not to a person.

As a side note, I should add something since this argument is widely misunderstood. Would it be "better" if Windows were licensed to an individual? Sure, but that's not reality. The important thing to remember is that, with Vista, this device-based emphasis has not changed. Windows is, as always, not licensed to an individual. It's licensed to a device. One device.

The Windows XP EULA appears to implicitly allow infinite transfers because it doesn't explicitly explain how many times one might transfer a single copy of XP. As it turns out, infinite transfers wasn't the intention. "This clause was always aimed at very specific circumstances," Microsoft general manager Shanen Boettcher told me. "Someone has a hardware failure, but still wants to run that copy of Windows on the new machine, for example."

The problem, of course, was that some people felt they could install a single copy of Windows as many times as they wanted. "It's always been per copy, per device," Boettcher said.

With Windows Vista, the EULA has been clarified. It now explicitly states that a user may "reassign the [Windows Vista] license to another device one time." This, the pundits say, is a huge restriction that wasn't present in Windows XP. Many people incorrectly believe this to be the case.

What's more amazing is that the number of people who actually try to do this is incredibly small. Since you can't transfer a copy of Windows that comes with a new PC anyway, less than 10 percent of all Windows licenses are transferable at all. And of those, only a tiny percentage of users have ever tried to even transfer a Windows license once. The only people that really need to do this regularly are hardcore PC enthusiasts who change their machine configurations regularly. In short, this new restriction isn't all that new and it won't affect any mainstream users.

And if you do actually have a catastrophic PC failure, you'll be able to transfer your license just as before. The process, as it turns out, hasn't changed at all. "The escalation process is exactly the same in Vista," Boettcher told me. "You have to call support. It just wasn't clear in Windows XP. But we wanted to do the right thing by the customer. So we let them move a license, while being clear about what the license is intended for. In the past haven't been super clear up front."

Adding and removing PC components

This one dates back to the first horror stories about Product Activation (PA) and how users who made even modest hardware changes to their PCs would have to reactivate Windows on a regular basis. In worst-case scenarios, so the story went, users would be shut out of their PCs because Windows detected too many hardware changes.

Hogwash. Fewer than 5 percent of PC users ever open a PC case let alone perform major hardware surgery. But if you're one of those guys who regularly upgrades your PC's hardware, you'll be happy to hear that instances of forced reactivation because of hardware upgrades are less frequent under Vista than they were under XP. More to the point, this is another one of those issues that only affects a tiny, tiny percentage of Windows users.

When Windows examines changes to the system, the two most heavily weighed components are the PC's motherboard and hard drive, in that order. If you change both of these components at one time, Windows will almost certainly assume it's running in a new computer and cause you to reactivate. "It's that old question, 'When does a boat become a new boat?," Boettcher asked, rhetorically. "When every plank has been replaced, is it a new boat?" In the case of a Windows XP and Vista-based PC, there is an algorithm that examines hardware changes and, based on an internal score, determines whether a reactivation is required.

When that happens, Windows will attempt to reactivate electronically. If that fails, the user will need to call and reactivate manually. This is the same under Vista as it was under XP, though again the algorithm has been updated to be less strict.

"This is a fairly rare thing," Boettcher said. "Edge cases can be accommodated through customer support, but it's a relatively small group: People who are building their own PCs; hard core enthusiasts." Long story short, you'll have to talk to a human being and explain what happened. Just as you have had to do with XP.

Virtualization licensing

One final area that's come under a lot of scrutiny--and, as it turns out, misguided interpretations--regards virtualization. With Windows Vista, Microsoft is finally addressing virtualization in the EULA. And it goes something like this:

Any version of Windows Vista can host virtual machines (VMs), whether in Microsoft's Virtual PC solution or a rival product like VMWare Workstation. However, only two retail version of Windows Vista are licensed for use as a guest OS in a VM: Windows Vista Business and Ultimate. (A third--non-retail--Vista version, Vista Enterprise, has different licensing terms, which I'll address in a bit.)

Let that one sink in for a second. You cannot install Windows Vista Home Basic or Home Premium in a virtual machine, at least from a legal standpoint. (There is nothing technical preventing you from doing so, of course.) And on a related note, each retail copy of Vista you purchase is only licensable for one install. If you install a copy of Windows Vista in a virtual machine and then activate it, you cannot install the same copy of Vista on a physical machine and reactivate it (unless you take advantage of the transfer rights mentioned above, of course). One license equals one installation.

So why "restrict" users like that? Well, as it turns out, there's no massive conspiracy. Currently, the majority of Microsoft's virtualization users fall into exactly two groups: business customers and enthusiasts. Business customers will want Vista Business and enthusiasts will use Vista Ultimate. Simple. And though pundits might like to complain about this apparently arbitrary decision, the reality is that very, very few people can ever come up with a legitimate reason to run, say, Vista Home Basic in a VM. And those that want to, can, if they don't mind violating the Vista EULA and not receiving support.

Windows Vista Enterprise is a special case. With that version of Vista, which will be made available only to volume license customers, users will be able to install a single licensed copy of Vista on one physical PC and up to four VMs, simultaneously. Those four VMs, however, must all be installed on the same Vista Enterprise-based PC, and they must be used by the same user. "If customers need multiple virtual machines they should use Vista Enterprise," Microsoft's Scott Woodgate told me. "The intention is to be generous and enable whatever scenarios are customers may need." Sounds like a customer benefit to me.

Conclusions

There are so many opinions out there on the Internet. But opinions are a dime a dozen. Sometimes, when you want to know what's really going on, all you have to do is ask the source. That's what I've done here, and I hope this clears things up. As important, I hope you realize the issues raised about Vista's licensing won't be huge issues for the vast majority of Microsoft's customers. And anyone who says differently is just trying to be controversial. There's no need for that. These issues, as it turns out, are pretty clear-cut.

All that said, I should address a few criticisms of this article that have appeared since it was first published. Yes, I'd like to see a world in which retail copies of Windows could be "owned" by an individual and moved from PC to PC. Heck, I'd like to do away with Product Activation all together. My point here isn't to be a Microsoft shill, but rather to point out that the licensing terms for Vista haven't really changed all that much from XP. What's really happening is that Microsoft is clarifying the license. Yes, a small group of enthusiasts who change hardware regularly will be adversely affected by the Windows licensing terms, but since they haven't changed much from XP, this isn't a new story. All the problems people will have with Vista are true of XP as well.

It's easy to criticize Microsoft because they're dominant and huge, an easy target. I criticize the company when they deserve it, but I also think it's fair to applaud Microsoft when it makes positive moves. In this case, it's not so simple: The Windows license is, in my opinion, unfair in some ways to individuals. But it's also true that the Vista license isn't dramatically worse than what the company did with Windows XP.

For a certain segment of the Windows community--those individuals who are highly technical in nature, build their own PCs, and upgrade their hardware very regularly, the Vista licensing terms are going to seem draconian and unnecessary. Fair enough. But that was true of XP as well. And ultimately, that's all I'm trying to point out. Not much has changed.