Microsoft is Misleading Consumers With Windows 8.1 System Builder Licensing

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If you’ve purchased a “System Builder” OEM copy of Windows 8.1 from Amazon, Newegg, or another online retailer, you’re probably violating the Windows license agreement. That means you technically have a “non-genuine” copy of Windows.

Microsoft is misleading consumers here. This was a problem in the past, so Microsoft fixed the licensing problem in Windows 8. But — surprise! — they’re back to their usual tricks with Windows 8.1.

Editor’s Note: We contacted Microsoft Public Relations for clarification of the licensing issues here, but they didn’t respond. Considering the Windows 10 announcement happening tomorrow, we have to assume they will be making licensing changes in the future. But this licensing issue matters right now to anybody building a computer, so keep reading for all the details.

OEM Licenses Were Okay Up Until Windows 7, But Then…

If you ever purchased a copy of Windows 7 online, you probably purchased the “OEM” or “System Builder” edition, which was significantly cheaper than the standard retail copy. It showed up at the top of Amazon and Newegg when you searched for Windows. The popularity stats showed most people bought System Builder copies.

But you actually weren’t allowed to purchase the System Builder copy! The fine print in the license said that you couldn’t use it for your own personal use. Instead, the OEM System Builder copy was only for people who would build computers and then sell them.

Prior to Windows 7, purchasing an OEM System Builder license for your own PC was perfectly fine. In fact, there are legitimate drawbacks to this cheaper license — no support direct from Microsoft and the copy of Windows being tied to a single PC, for example.

With Windows 7, Microsoft changed the popular System Builder/OEM license of Windows. Normal people were no longer allowed to use it to build their own PCs, but Microsoft continued selling them like hotcakes to those same people. This problem was chronicled excellently by Ed Bott over at ZDNet in 2009. Read “Is it OK to use OEM Windows on your own PC? Don’t ask Microsoft” for more background.

Just look at the screenshot below — the Windows 7 Home Premium System Builder edition, which is “intended for pre-installation on a new PC for resale,” is the #1 best selling operating system product on Amazon.com. Microsoft knows exactly how it got to that #1 position — because normal computer users bought it.

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Windows 8 Had a “Personal Use License”

Sure, Windows 8 had its problems. But Microsoft did licensing right with Windows 8 — they saw that the Windows 7 OEM System Builder licensing situation was crazy. To fix it, they added a “Personal Use License” allowance to the Windows 8 System Builder license. This means that you could purchase a Windows 8 System Builder license and install it on a new PC you were building.  This was good, because people were doing this anyway. Really, they were just undoing a ridiculous licensing change they made for Windows 7.

As Microsoft’s Windows 8 licensing guide puts it:

“With the Personal Use License, end users can buy an OEM System Builder License and use it on a machine they self-build, or as an operating system installed on its own partition in a dual-boot configuration, or in a virtual machine.”

Windows 8’s license changes were widely reported on at the time. And, for a time, everything was fixed.

Windows 8.1 Changed Everything Back

Windows 8.1 is considered a completely new operating system, and it has a new license agreement. The personal use allowance was removed from the Windows 8.1 System Builder license. You may have purchased a System Builder copy of Windows 8.1 after hearing this problem was solved in Windows 8, but sorry! You’re using a non-genuine copy of Windows in Microsoft’s eyes. This is spelled out very clearly on Microsoft’s “Windows system builder licensing for personal use” page:

“If you are building a system for your personal use or installing an additional operating system in a virtual machine, you will need to purchase Windows 8 software or a Microsoft retail version of Windows 8.1 software. Windows 7 and Windows 8.1 system builder software does not permit personal use, and is intended only for preinstallation on customer systems that will be sold to end users.”

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At the time, Microsoft announced they’d be removing System Builder copies of Windows from typical consumer retail channels — computer stores and online retailers like Amazon and Newegg. In fact, press reported that Microsoft was killing the “System Builder” copies of Windows so everyone could just buy the standard retail copies. In September 2013, TechCrunch reported that:

“Microsoft is shifting gravity away from System Builder builds except for OEM partners and others that buy its operating system in bulk from distribution partners.”

However, it’s now more than a year later and you can still find System Builder copies of Windows 8.1 near the top of Amazon and Newegg when you go to buy a copy of the latest version of Windows for your new PC. People are clearly buying these. In fact, the System Builder copy of Windows 8.1 Pro is $46 cheaper than the standard retail copy of Windows 8.1 Pro on Amazon.com right now. People are clearly buying these system builder licenses for personal use. The licensing information on sites like Amazon and Newegg doesn’t clearly say “YOU ARE NOT ALLOWED TO BUY THIS FOR YOUR OWN PC” — that’s what it should say if Microsoft is serious about enforcing their license agreement.

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When you search for Windows 8.1, Amazon displays the message “If you’re a system builder, Amazon offers Windows OEM products. Otherwise, shop our Windows 8.1 titles.” But come on — we all know normal people are buying the System Builder editions. This message is also purposely vague — you might think you’re a System Builder because you’re building your own PC. You’re not — at least according to Windows 8.1’s terms, although you were a System Builder under Windows 8’s license. Before that, Windows 7 didn’t consider you a System Builder, while Windows Vista and previous versions of Windows did — according to Microsoft’s website, although the license agreement itself was vague.

Yikes! Who can keep track of this stuff?

Want a Legitimate License? Those Cost Extra

Look, this is a completely absurd situation. If you’re an average PC enthusiast building a PC, you probably purchase a System Builder edition of Windows because it’s cheaper and shows up on top of Amazon and Newegg. If you had any reservations about it, they were probably cleared up when you heard about the licensing change in Windows 8. Microsoft gets money, you get a copy of Windows, and then things go off the rails. Although you bought a legitimate copy of Windows from a legitimate retailer and Microsoft got paid, Microsoft gets to say you’re breaking the Windows licensing agreement.

If you actually read the licensing agreement, you have a choice. You can knowingly violate the license by buying the same copy of Windows most people are buying — one that Microsoft goes back and forth between allowing and disallowing. Or, you can try to “do the right thing” and follow the licensing agreement. Want to do the right thing? That will cost you extra — “doing the right thing” is a premium product.

It’s price segmentation — do you just want a copy of Windows that will work normally? Here you go, $130 for the Professional edition. Do you want to obey the licensing agreement and have a properly licensed copy of Windows Professional? That’ll be $46 extra; thanks for your business.

Of course, Microsoft isn’t actually enforcing this, not as far as we know. But they do perform software licensing audits on businesses. If you use Windows 8.1 for business, you better spend the extra money on the retail edition, just to be safe — and that’s what they’re counting on.

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Hopefully, Microsoft didn’t respond to us because they knew this licensing fiasco is indefensible. They may have already fixed this problem for the next version of Windows. (Or that may be wishful thinking.)

If they haven’t fixed the System Builder license, Microsoft needs to stop playing games. Don’t want people buying the System Builder copy of Windows? Then stop selling them on Amazon and Newegg, or at least put a big “YOU ARE PROBABLY NOT ALLOWED TO BUY THIS” disclaimer up. Want to keep selling cheap System Builder copies of Windows? Then change the license agreement to allow personal use again. Simple!

Image Credit: Robert Scoble on Flickr

Chris Hoffman is a technology writer and all-around computer geek. He's as at home using the Linux terminal as he is digging into the Windows registry. Connect with him on Google+.