Understanding how Windows Server 2025 PAYG licensing works
Microsoft debuts pay-as-you-go licensing for Windows Server 2025, giving enterprises more flexibility - but how does it work?
Published on 28th May 2025
Microsoft uses a perpetual licensing model for its server OS, but for enterprises that need more flexibility, the company now offers a new licensing model.
Microsoft released Windows Server 2025 in late 2024 with the usual fanfare for all its new and updated features, but it also debuted a new licensing model it calls Pay-as-you-go (PAYG) for the server OS. Instead of a one-time charge for a perpetual Windows Server license, organisations can use a subscription-based license for Windows Server 2025 that integrates with Azure Arc for management and billing functionality. The PAYG option might benefit companies that only need to run extra Windows Server workloads for the short term. Before using Windows Server 2025 PAYG, it’s important to familiarise yourself with the cost, requirements, management and limitations.
What is Windows Server 2025 PAYG?
Windows Server 2025 PAYG is a subscription-based licensing option that works with the Azure Arc management tool. PAYG gives an organisation a way to license a device running Windows Server 2025 and only get charged for the time the workload runs.
This follows the same pricing for Windows Server licensing on the Azure cloud platform but is meant for servers deployed outside that environment, such as on-premises or in third-party clouds.
The key aspect of PAYG is flexibility. While a perpetual Windows Server license has its benefits, PAYG can be useful for certain scenarios, such as temporary workloads for use in a testing environment or to handle seasonal demands.
How does PAYG differ from typical Windows Server licensing?
PAYG for Windows Server 2025 is a departure from the usual Windows Server licensing method.
Microsoft charges different prices for Standard and Datacenter editions. With PAYG, Microsoft charges the same for both editions.
Unlike the Datacenter license, which allows unlimited VMs on the host, the PAYG license only applies to the physical or virtual device. Each VM must have a separate license.
Windows Server workloads require Client Access Licenses, but PAYG does not, although Remote Desktop Services, or RDS, CALS are still needed.
For PAYG, Microsoft offers upgrade rights to versions newer than Windows Server 2025 at no extra cost. Upgrading a perpetual Windows Server license requires either a new license or Software Assurance.
Because Windows Server 2025 PAYG is tied to Microsoft Azure, it requires internet connectivity and an Azure subscription with Contributor or higher rights. A perpetual Windows Server license does not require internet access and can be used in a disconnected environment.
Windows Server PAYG requires Azure Arc integration, while admins can use a wide range of management tools with a workload that uses a traditional Windows Server license.
Understanding PAYG vs. traditional Windows Server licensing
Enabling and disabling PAYG licensing is how enterprises control costs. This is done through the Azure portal, with PowerShell or via the PAYG API. If a VM is powered down or de-provisioned without first disabling PAYG, then charges continue to accumulate.
With a traditional perpetual Windows Server license, Microsoft charges based on the number of physical cores on the server. For the Windows Server 2025 Datacenter edition, the list price is $6,771 and covers a 16-core CPU, meaning a larger CPU requires additional licenses by purchasing two-core and 16-core packs to cover the licensing gap. The benefits for this license include the following:
- One-time charge
- Ability to run unlimited VMs
- Ability to work in an air-gapped environment
- Ability to use a range of management tools
For Windows Server 2025 PAYG, there is no minimum core purchase price, and Microsoft charges based on the number of virtual or physical cores used. The PAYG costs appear on the Azure bill and are broken down by hourly rates.
Microsoft charges Windows Server PAYG per CPU-core-hour at a fixed Azure rate of $33.58 per core, per month, which breaks down to about $0.046 per core, per hour. The Azure pricing calculator helps price out the monthly spend for your specifications.
How to implement Windows Server 2025 PAYG
Admins use the same setup process for Windows Server 2025 PAYG as a typical Windows Server installation.
Admins need to use a retail copy of Windows Server 2025 and choose the Pay as You Go option at the Choose a Licensing Method screen. No product key is required. Admins can use Evaluation and Volume License media but must activate PAYG from the Azure portal after installation.
After installing Windows Server and logging in the first time, Windows launches the Azure Arc setup wizard, which installs the Azure Connected Machine agent onto the machine and prompts for the sign-in to Azure Arc.
Next, go to the Resource Details screen, and enter the pertinent information about the new server. Click Next for the prompt to choose a licensing method, and select Pay as You Go with Azure. Click Next, followed by Finish.
To enable pay as you go through the Azure portal, go to the Machines Azure Arc page, and then select the machine to enable and choose the pay-as-you-go option. Now, select the Pay as You Go with Azure checkbox, and click Confirm. You can disable pay as you go in a similar manner. Simply deselect the pay-as-you-go option, and uncheck the Pay As You Go with Azure checkbox. When prompted, click Confirm to deactivate.
If you prefer, you can use PowerShell to enable or disable pay as you go by using the Connect-AzAccount cmdlet to connect to your Azure subscription. Once connected, to enable it, run the following PowerShell script.
After choosing the PAYG model, the server enrols in a seven-day trial period. Billing automatically begins at the end of the trial if PAYG is not disabled.
On the surface, the Windows Server 2025 PAYG option appears to be little more than another way to license Windows Server 2025. There is no difference in the feature capability whether you use PAYG or a perpetual license. However, because PAYG deployments are tied to Azure Arc, those servers can be managed in Azure and benefit from using Azure services, such as Azure Update Manager, Azure Change Tracking and Inventory, and Azure Machine Configuration.
