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Microsoft's offer to sell home users extra licenses to use their Windows XP software on additional PCs is a hit. It's such a big hit, you can't find the licenses anywhere.

Windows XP's product activation, which essentially ties the copy of the operating system to the PC on which it's installed, is intended to stop the illegal practice of installing the OS on multiple PCs. To further encourage multiple-PC homes to play by the rules, Microsoft offers additional licenses for slightly less than the cost of the initial retail package (the offer doesn't apply to owners of new PCs with Windows XP). The problem: A month after Windows XP's release, Microsoft has already run out of licenses.

"There is a backlog," says Mark Croft, lead product manager for Windows XP. "What happened is we made some projections about how many additional family licenses we would sell in the first 90 days, and the demand has far exceeded our expectations." Microsoft won't give figures, or even reveal the percentage of sales that are family licenses.

"We're in the process of restocking, but while it sounds like it may be easy, there is actually a manufacturing process involved," he says. That process involves the creation of a paper license and a new product key code. Croft says he expects the supply of licenses to improve by the end of November.

And here's another catch: You can't purchase additional family-use licenses based on a license of a Windows XP preloaded on a new PC. To take advantage of the family license, you'll need to buy a full packaged copy of Win XP. That's always been the plan, because most preloaded discs are already tied to a single PC, and that disc couldn't be used to install the OS on another system, according to Microsoft.

No Casual Copiers

Two areas of illegal activity impact Microsoft's sales: casual piracy and professional counterfeiters, Croft says.

Microsoft implemented the product activation process in the retail versions of Windows XP Home and Professional to deter casual copying. The company employs other techniques to try to stop the professional counterfeiters, he says.

After the product activation drew some static, Microsoft eased up, implementing some practices intended to lessen the hassle for legitimate licensees. It also implemented the family licensing discount.

Microsoft doesn't publish hard numbers, but Croft says a "significant number" of the installed versions of Windows are the result of casual copying.

"Product activation is a means of trying to get some control over people installing Windows on multiple PCs," he says. "But we tried to use a technology that didn't really impact people--that didn't make it harder to install Windows or to upgrade their machines."

Slight Savings

To make it easier for users trying to comply with the one-PC-per-copy rules, Microsoft decided for the first time to offer additional licenses one by one. In the past, the smallest number of product licenses available was a five-license set, he says.

Here's how it works: You can buy a license to use your existing Windows XP disc to install the software on another PC for up to 10 percent less than the original cost of the program. So, for example, at Microsoft's own Web-based store, if you bought the Windows XP Home Upgrade version for $99, you can buy an additional license for that product for $89. If you bought a full version of the software for $199, a second license will run you about $189.

Croft admits the price cut isn't a large savings for consumers, but he says it essentially reflects the fact that Microsoft doesn't have to produce another disc. For buyers, "it's partly a convenience, partly a price break," he says.

Of course, with additional licenses in short supply, the convenience factor is a bit lacking.

"We didn't plan to get to the point where we are backlogged, but we are," he says.

Product Activation Myths

Despite all the ink on XP's product activation, Croft says a number of myths are still swirling around the topic. Chief among them: that product activation sends detailed information to Microsoft about you and your PC.

In the retail versions of XP, when you install the operating system it scans the PC and hashes together pieces of information about the hardware, then combines that data with the product key to create an encrypted string of numbers, which it stores on your hard drive, he says. When you activate Windows XP, the program sends that encrypted string of numbers to a Microsoft server.

"We don't capture any personally identifiable information," he says.

The second biggest misconception is that you can't upgrade your PC's hardware once you install Windows XP, he says.

The simple fact is, you can change up to six components without any issues, he says. "If you stick a new hard drive in, it doesn't impact anything."

"The only group who will have any ongoing activation issues are the labs that are continually recycling PCs on a weekly basis," he says.

And for the rare home users who do make major hardware changes, such as swapping out six pieces of hardware or installing a new motherboard, they simply have to call a toll-free number at Microsoft. The technician there will ask about the hardware changes, and then will reactivate the software over the phone, he says.

XP on New PCs

Finally, most folks who buy a new PC already running Windows XP--Microsoft says it sells nine of ten copies this way--won't have to deal with product activation at all, he says.

The major vendors each have their own unique key, and the key is tied to the BIOS of the PC, he says. So when a company such as Dell ships you a Windows XP PC, the company has pre-activated the software for you.

And on these new PCs, you can upgrade everything, including the BIOS, without having to reactivate the software, he says. However, you cannot remove the software from the original PC and install it on another PC, he notes.

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