With Windows 8, Microsoft has completely overhauled the license agreements it presents to customers.

Historically, these end user license agreements, or EULAs, have been lengthy documents written in dense legalese. The new EULAs break this mold completely; the English-language versions I inspected are written in simple, easy-to-understand language.

I have had a chance to inspect three different Windows 8 EULAs:

the retail upgrade (with slight variations for Windows 8 and Windows 8 Pro);

the OEM agreement that most consumers will see when they purchase a new PC with Windows 8 preinstalled;

and a new license type called a Personal Use License for System Builder, which won’t be available until the General Availability of Windows 8 in October.

This last type replaces the outmoded and overpriced full package product and represents a significant and positive change in the way Microsoft licenses Windows.

The preamble to all of these agreements contains the following text:

For your convenience, we’ve organized this agreement into two parts. The first part includes introductory terms phrased in a question and answer format; the Additional Terms and Limited Warranty follow and contain greater detail. You should review the entire agreement, including any linked terms, because all of the terms are important and together create this contract that applies to you.

Much of the Q&A section that follows is identical in all license types, covering things like your right to make a backup copy and the requirement to activate the software. But there are crucial differences in the first question, which defines what you can do with Windows 8 under the terms of that specific license.

Here’s a comparison of that text from all three licenses. (I’ve boldfaced the relevant text in each one).

How can I use the software? OEM The software is licensed, not sold.Under this agreement, we grant you the right to install and run one copy only on the computer with which you acquired the software (the licensed computer)... RETAIL UPGRADE We do not sell our software or your copy of it – we only license it. Under our license, we grant you the right to install and run that one copy on one computer (the licensed computer), for use by one person at a time, but only if you comply with all the terms of this agreement. Typically, this means you can install one copy of the software on a personal computer and then you can use the software on that computer. PERSONAL USE LICENSE (SYSTEM BUILDER) FOR WINDOWS 8 PRO We do not sell our software or your copy of it – we only license it.Under our license, we grant you the right to install and run that one copy on one computer (the licensed computer) as the operating system on a computer that you build for your personal use, or as an additional operating system running on a local virtual machine or a separate partition, subject to the restrictions outlined under “Are there things I’m not allowed to do with the software?”

That last license type represents the first time Microsoft has formally acknowledged the right of its end-user customers to install Windows 8 on a new PC they build themselves, or to install it in a virtual machine or on a separate partition.

Currently, Microsoft sells Windows in three packages: retail upgrades, OEM System Builder packages, and full retail licenses (aka Full Packaged Product, or FPP). As I’ve written about extensively, Microsoft’s System Builder license expressly prohibits the use of this software by end-user customers, who are expected to pay significantly higher prices for an FPP license.

See also:

The new Personal Use License agreement specifically grants you the right to buy the same software available to System Builders and use it on your own PC—in its own physical partition or in a virtual machine. This is an enormous improvement over the existing Windows 7 license.

The Q&A portion of the new agreement reinforces these terms. The final question is “Are there things I’m not allowed to do with the software?” The answer includes this text:

You may not install the software as an operating system on any computer except one that you are building for your own use or as an operating system running on a local virtual machine or a separate partition. You may not install the software on a computer that is running a non-genuine Windows operating system.

The new EULA should be an ideal solution for anyone using Windows 8 in a virtual machine on a PC or a Mac. The language about "non-genuine Windows" is designed to prevent the use of a System Builder license on a system running a counterfeit copy of Windows; for those customers, Microsoft has a separate Get Genuine product.

Update: The tinfoil-hat brigade has showed up in the comments to suggest that this license agreement is a nefarious plot to block Linux or Mac users from running Windows in a VM. Nothing could be further from the truth. These Personal Use License terms specifically allow you to run Windows in a virtual machine, regardless of the platform. The reference to "a non-genuine Windows operating system" applies to Windows installations that have either not been properly activated or are using a blocked license key or an activation crack. More details here.

We don’t know how much Microsoft will charge for Windows 8, but there is strong evidence to suggest that Windows 8 will cost less than corresponding versions of Windows 7. During the run-up to the launch of Windows 7, for example, Microsoft offered discounted licenses for Windows 7, selling Windows 7 Professional upgrades for $100. Those discounts were only available for a limited period before the official launch of Windows 7. For Windows 8 Pro, the upgrade price at launch will be $40, a special price that will last for roughly three months.

Microsoft will sell those upgrades and the new Personal Use License for System Builder directly to consumers. By cutting retailers out of the transaction and eliminating the need for retail packaging, it can afford to cut the price dramatically without affecting its bottom line. If the new System Builder licenses get the same discount as retail upgrades, a copy of Windows 8 Pro will cost significantly less than $100.

I’ll have a more detailed look at what’s in each of the new license agreements tomorrow. Stay tuned…