When Dataprise Inc., an IT services company, helped a customer with a desktop virtualization project last year, it found itself dealing with desktop virtualization’s dirty little secret: No one — including vendors — seems to know how to license the software.

Having run a successful pilot, Dataprise’s client wanted to take the next step and deploy 700 virtual desktops, says Chris Sousa, director of infrastructure service at Dataprise. That’s when the trouble began. Like many businesses, the customer — a manufacturer of fiber-optic cable — had an enterprise agreement with Microsoft Corp., but its IT staff wasn’t sure exactly what was covered in a virtualized environment. Apparently, neither was Microsoft, says Sousa, who noted that he called the company repeatedly seeking information.

“We’d get a different answer from a different person on a different day,” he says.

In a 2009 study by Info-Tech Research Group Inc., Microsoft Windows licensing was identified as the No. 1 pain point for organizations implementing desktop virtualization, according to Info-Tech analyst John Sloan.

Microsoft claims that it has tried to improve its virtualization pricing policies. Most recently, the company relaxed its licensing rules for virtual desktops and expanded rights to access a given virtual desktop from more than one computer.

The changes are “a step in the right direction,” says Sloan, but he adds that Microsoft “hasn’t gone as far as many would like.” For example, although the new roaming rights allow users to log into their virtual desktops from devices outside of the corporate firewall, such as home PCs or airport kiosks, the virtual desktop is still licensed to a specific corporate PC. That means a user may not be able to access his virtual desktop from another corporate PC, like one in a branch office, Sloan explains.

Confused yet? Microsoft licensing “is still so complicated that users and even resellers don’t understand it,” says Barb Goldworm, president and chief analyst at consultancy Focus LLC. Not only are the specific vendor rules confusing, but IT managers also mix up the licensing of the virtualization software (which serves as a connection broker and a virtual desktop running on a back-end hypervisor) and the licensing of the software that actually runs on the desktop (the operating system and applications).

The Vendors’ Struggle

But the problem is bigger than just Microsoft. All software vendors are struggling with this issue to some extent. When Citrix Systems Inc. introduced XenDesktop 4, it changed from its traditional model — concurrent licensing — to one license per named user. But customers quickly complained that they needed more flexibility. In some industries, for example, multiple users share the same device.

So Citrix quickly added per-device licensing and brought back concurrent licensing for its Virtual Desktop Infrastructure edition, says Calvin Hsu, director of product marketing at Citrix.

In some cases, IT managers throw up their hands and look for other options. When Michael Goodman discovered that he’d have to buy two licenses for the same Windows operating system — one for a thin client and one for the operating system running on the server — “it really knocked down my payback period on the ROI,” he says. That was one of the reasons the vice president and director of information systems and technology at Crescent State Bank in Cary, N.C., skipped thin clients and went with a Pano Logic Inc. client device, which serves as a dumb terminal connected to an operating system that is running on a server in the data center.

In other cases, IT managers simply wing it, making a good-faith effort to pay the proper licensing fees without knowing exactly what licensing fees are required, which is what Sousa’s client did. “We were trying to be upstanding citizens and not rip anybody off, but we couldn’t get definitive answers,” he says.

Complex, Like the Tax Code

Software licensing for virtual desktops is incredibly complex, confusing and, in some cases, prohibitively expensive. “It’s like the IRS tax code,” says Dave Buchholz, principal engineer at Intel Corp.’s Intel IT unit, who has been running a research project that looks into all aspects of desktop and application virtualization.

The problem is multifaceted. Like with an onion, when you peel away one layer, you reveal another. At its most basic, the problem reflects a fundamental shift in the industry: Software is being divorced from hardware at a faster rate than ever before, mostly because of virtualization. As software vendors deal with this shift, they are experimenting with different approaches. Some still tie the software license to a specific piece of hardware, some are moving to a user-based license, others sell concurrent-user licenses and still others do a mix of all three.

On top of that, there are different flavors of virtualization at the desktop level, such as virtual desktop infrastructure, application virtualization and operating system streaming. And different types of licensing plans can apply to the different flavors. Moreover, there are many different layers of software in any virtualized environment — the operating system, the virtualization software itself, the applications — each of which has its own licensing requirements.

The confusion over licensing of Microsoft products is tripping up small and midsize companies in particular, because they may not have Software Assurance plans, says Sloan. And large enterprises that are covered through SA and enterprise agreements sometimes don’t feel that they need to keep track of all of the details, even though they should.

Bill Galinsky, senior vice president of global IT infrastructure at software vendor CA ­Technologies, started an internal desktop virtualization pilot project in January 2010. So far he has virtualized 500 desktops, and he expects to reach 2,000 of the company’s 13,000 employees within a year.

When Galinsky started the pilot, he bought Microsoft’s Virtual Enterprise Centralized Desktop licenses for the virtual desktops. But as of July 1, the VECD disappeared, and those rights are now included in the SA program, which for all practical purposes bases licensing on the number of users rather than pieces of hardware, he says. “In our case, our enterprise agreement works out to a ratio of around 1-to-1.27. So every employee can run 1.27 copies of the operating system and Microsoft Office.”

Vince Kellen, CIO at the University of Kentucky, is also facing the pricing conundrum as he considers how to virtualize about 1,000 desktops on campus. “It’s a challenge to get the software licensing that you want,” he says. But in his case, Microsoft and other big software vendors aren’t the problem. Kellen says he’s covered under enterprisewide contracts geared toward academic institutions, “but as soon as we get into other software outside of our normal contracts, it can get more difficult.”

With some of the university’s smaller vendors, especially those selling niche academic and clinical applications and specialized math or statistical software packages, it’s “a little harder to work through the contracting,” Kellen says.

Over time, he hopes that software vendors can find a less expensive pricing model that is desktop-virtualization-friendly — one that licenses concurrent users instead of specific named users, for instance. “This will be hard for smaller vendors, I think, as larger vendors have a broader portfolio of software products and perhaps business models, which will give them flexibility,” Kellen adds.

The whole concept of software licensing is morph­ing as virtualization grows and consumer electronics invade corporate IT. “As corporate employees start using many different devices — smartphones, laptops, iPads — corporations are asking, ‘How many licenses am I going to have to buy?’” says Buchholz.

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