If you're a service provider navigating Microsoft's licensing landscape in 2026, there's one benefit you absolutely need to understand: Flexible Virtualization Benefit (FVB). Introduced in October 2022, this licensing option has fundamentally changed how service providers can work with customer licenses and if you're not taking advantage of it, you may leave money on the table.
Simply put, the Flexible Virtualization Benefit allows customers to deploy software on shared servers in the cloud, and it applies to all software, including products not covered by License Mobility. This means customers with subscription licenses or active Software Assurance (SA) can bring their own licenses (BYOL) to your (the service provider’s) infrastructure - whether shared or dedicated - and run their Microsoft workloads there.
Think of it as Microsoft's way of leveling the playing field for service providers outside the big four hyperscalers.
Here's the critical detail: The Flexible Virtualization Benefit excludes four major service providers: Amazon, Google, Alibaba, and Microsoft Azure. These are called "Listed Providers," and they're explicitly excluded from FVB.
What does this mean for you? This is your competitive advantage. If you're operating your own infrastructure or using providers outside the listed ones, you can offer something AWS, Azure, and Google Cloud cannot: the ability for customers to bring their existing Microsoft licenses to your shared multitenant environment.
Any service provider that isn't a Listed Provider and doesn't use Listed Provider infrastructure qualifies as an "Authorized Outsourcer". No special authorization or agreement with Microsoft required.
Before FVB, service providers faced significant restrictions. Customers could only use their own licenses in dedicated (single-tenant) environments, which was expensive and limited scalability. Software Assurance coverage allows customers to move software to any cloud provider's infrastructure, dedicated or shared, fundamentally expanding what's possible.
This creates several opportunities:
1. Attract customers looking to optimize licensing costs
Volume licenses with Software Assurance or CSP subscriptions are typically less expensive than SPLA licensing. Volume licenses with Software Assurance or subscription are significantly more affordable than SPLA, which means customers who already own licenses can reduce their costs by working with you instead of buying new licenses from hyperscalers.
2. Build BYOL-focused service offerings
You can now design hosting packages specifically for customers who want to bring their existing Microsoft investments. Previously, many customers had to rent licenses as consumption-metered services, but now they can BYOL to reduce costs.
3. Win against the hyperscalers
The “Big Three” can’t offer FVB, but you can! This gives you a massive edge with enterprises tired of rigid licensing and vendor lock-in. When you factor in the recent restrictions on running SPLA licenses via Listed Providers, the choice for customers becomes clear: your infrastructure provides the freedom and flexibility the hyperscalers simply can’t match.
All Microsoft software available as subscriptions or licenses with Software Assurance is included in the Flexible Virtualization Benefit. This includes:
- Windows Server (with even per-virtual-core licensing option)
- SQL Server
- Microsoft 365 and Office 365 applications
- Exchange Server
- Windows 10 and Windows 11
- Desktop applications, developer tools, and virtually every other Microsoft product
One particularly important change: With the introduction of the Flexible Virtualization Benefit, Microsoft 365 apps can now be deployed with any Authorized Outsourcer without QMTH authorization. Previously, hosting Microsoft 365 in a multitenant environment required rare Qualified Multi-Tenant Hoster authorization. That restriction is gone.
To use FVB, customers must meet specific requirements:
- Eligible licenses only: Customers need subscription licenses or licenses with Software Assurance. Perpetual licenses without active Software Assurance don't qualify.
- Same terms as on-premises: The same terms that govern software use in a customer's own data center also apply to software deployed under the Flexible Virtualization Benefit. This means if a customer needs CALs on-premises, they need CALs in your environment too. There are some exceptions to specific licensing rules.
Windows Server specifics: You can license Windows Server virtual machines per virtual core, with a minimum of 8 core licenses per virtual machine.
This is crucial: Customers outsourcing to Authorized Outsourcers' shared servers remain responsible for ensuring compliance with the terms and conditions of their agreements with Microsoft. However, as a service provider, you should still document customer licenses to protect yourself.
While Microsoft no longer requires verification forms for FVB (unlike License Mobility), it's smart business practice to collect evidence of eligible licenses. This protects you during audits and demonstrates you're operating within the rules.
If you're ready to capitalize on Flexible Virtualization Benefit:
- Verify your infrastructure: Ensure you're not using Listed Provider infrastructure (AWS, Google Cloud, Alibaba, or Azure) as your underlying platform. If you are, you'll need to migrate or use a different approach.
- Design BYOL service packages: Create clear offerings that explain how customers can bring licenses, what you'll manage, and what value-added services you provide beyond basic infrastructure.
Pro tip: Do not combine infrastructure licences such as Windows Server from SPLA with BYOL. While this is theoretically permissible (but you need to decide), it is likely to be complicated to manage in practice (unless you have integrated the Octopus Cloud platform for instance). - Educate your customers: Many customers don't understand FVB yet. Help them see the cost savings and flexibility advantages. This builds trust and positions you as a licensing expert.
- Implement license tracking: Even though verification isn't required, maintain records of customer licenses for compliance protection and operational clarity.
Market your advantage: Make it clear in your positioning that unlike AWS, Azure, and Google Cloud, you can accept customer BYOL for all Microsoft products, including Windows Server and Microsoft 365.
Flexible Virtualization Benefit represents one of the most significant licensing changes Microsoft has made for service providers in years. It opens doors that were previously closed, creates competitive advantages against hyperscalers, and enables new business models built around customer license optimization.
As the hosting market continues to evolve, especially with the September 2025 deadline for SPLA in public clouds now past, service providers who understand and leverage FVB will be best positioned to capture customers looking for alternatives to the big cloud providers.
Increasing complexity of licenses
In addition to all these advantages, there is undoubtedly one important aspect that is becoming increasingly complex: license management. It is essential to clearly separate the different licence models, if not at the infrastructure level, then at least at the allocation level. Ideally, this should be done automatically.
This is where the Octopus Cloud platform can offer enormous simplifications and advantages. Our platform can help you clearly separate SPLA licence allocation and FVB allocations, saving you a tremendous amount of time when calculating license reports. Even Windows Server licenses, which are possible via virtual cores for BYOL, can be compared to traditional SPLA calculation.
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