As of July 1, Microsoft changed its Windows Azure licensing terms to allow the use of Remote Desktop Services (RDS) on Windows Azure Virtual Machines (VMs).

Before that date, Microsoft's licensing stipulated that service providers and enterprise users could run only up to two simultaneous sessions for server-admin or maintenace purposes on Azure VMs.

Does this mean service providers -- or end user customers -- can now run Windows clients/Windows desktops inside an Azure VM? Only if they are doing so on top of Windows Server.

The first Microsoft partner to announce support for this new RDS on Azure VM licensing was Citrix. Citrix announced on July 8 that it was making its XenDesktop 7 on Azure available to other service providers and enterprise customers.

"Microsoft recently enabled the use of Windows Server RDS service provider license on Windows Azure, and we are excited to see Citrix support for Windows Azure as an underlying infrastructure for customers and service providers deploying virtual desktops and applications," said Claire Fang, Director of Windows Azure, in a statement provided by the company.

Microsoft quietly noted the change in the licesning terms via an update to its Azure Virtual Machines Licensing Frequently Asked Questions list.

In a July 15 blog post explaining the new licensing changes, Microsoft's Luis Panzano noted that hosters interested in running RDS on Windows Azure VMs will need to purchase RDS Subscriber Access Licenses (SALs) through the Microsoft Services Provider Licensing Agreement (SPLA) for each user or device that will access their services an dsoftware on Windows Azure.

There are still a number of disallowed scenarios in spite of this new licensing proviision, however, Panzano explained:

RDS Client Access Licenses (CALs) purchased from Microsoft volume-licensing programs such as Enterprise Agreements (EAs), do not get license mobility to shared cloud platforms, hence they cannot be used on Azure.

Windows ‘Client’ OS (e.g. Windows 8) virtual desktops, or VDI deployments, will continue to not be allowed on Azure, because Windows client OS product use rights prohibit such use on multi-tenant/shared cloud environments.

At last week's Worldwide Partner Conference, Microsoft officials were talking up desktop hosting growth opportunities. In one session, Microsoft officials told service providers that they could differentiate themselves from Microsoft/Office365 by offering Lync running on iPad via RDS.

In that same session, company officials also noted that hosting-focused Reference Architecture for Desktop Hosting with Windows Server 2012 had recently been released. Windows Azure is not yet preconfigured to make these kinds of desktop hosting scenarios available on a turnkey basis, but some believe this capability is coming.

Service providers/hosters are a key component of Microsoft's "CloudOS" pitch. Microsoft customers can opt to run applications and data on premises themselves; have service providers do it for them; or go with Microsoft, which will host users' apps and data in Microsoft's datacenters ("in the cloud").

Microsoft is believed to be building its own Windows desktop as a service offering, codenamed "Mohoro," which is supposedly due out in the latter half of 2014. If Microsoft brings this to market, one would assume that service providers would be none too happy, unless they, too, are allowed to offer Windows client as a hosted service without all the current licensing hoops.