Cloud computing is based on a pay-as-you-go, self-provisioning utility model. Users are billed by the hour. On the other hand, software vendors are accustomed to shrinkwrap licenses, making it hard for cloud users to get the software they want on an on-demand basis. But as CNET reports, Microsoft has relaxed licensing for virtual machines licensing, opening the door for hosting providers to reinvent themselves as true clouds.

Until now, Microsoft’s software was tied to a physical server. Administrators could only move it from one physical machine to another four times a year, making it a nonstarter for many virtual environments. For hosting providers, the best Microsoft could do was its Service Provider Licensing Agreement, which was priced month-to-month. While that might be acceptable for a long-term contract with a hosting provider, a month is an eternity for on-demand clouds that spin up machines for an hour at a time.

This has meant that clouds have had to restrict themselves to just open source, or to pursue a narrow market where licensing is less restrictive. Cloud provider Skytap’s Virtual Lab, for example, focuses on testing in part because licensing test systems through the Microsoft Developer Network is much more flexible. Testing is also a “gateway drug” for broader cloud computing adoption: It’s bursty and not mission-critical. “Customers are reluctant to put production in the cloud, but they’re willing to put QA there,” said Ian Knox, Skytap’s Director of Product Management.

Microsoft’s licensing changes are aimed at its newly launched virtualization offering. But they’ll have another important consequence: By lifting licensing restrictions, Microsoft lets hosting providers provision and decommission servers far more frequently, allowing them to build true utility offerings around Microsoft’s servers and painting themselves with cloud stripes.