Thank you for raising this important point about Windows Server licensing accuracy in SNOW.

You'll be pleased to know that this issue has been addressed in Snow License Manager version 9.2 and later. A significant update was introduced that implements Microsoft's licensing rules at the host level, rather than allowing VM-level licensing as an option.

For detailed information about this implementation, please refer to the following article: https://community.flexera.com/s/feed/0D5PL00000NvzFA0AZ

Key improvements in Snow License Manager 9.2+:

• Automatic host-level licensing: When a Windows Server license is added, the VM use rights are now automatically applied in accordance with Microsoft licensing rules
• Fixed VM use rights: For Windows Server Standard, the system now correctly applies a fixed VM use right of two VMs per fully licensed host
• Datacenter editions: For Windows Server Datacenter, unlimited VMs per fully licensed host are supported
• Compliance accuracy: This change ensures that compliance reports now accurately reflect Microsoft's actual licensing requirements

If you are currently running an earlier version of SNOW, I would recommend upgrading to version 9.2 or later to ensure your Windows Server licensing calculations align with Microsoft's requirements and to avoid potential compliance reporting issues.

If you have any further questions about the implementation or need assistance with the upgrade, please don't hesitate to reach out.

Just for future readers, to give some context: Licensing per VM is not prohibited by Microsoft, that is not 100% clear from @EvanLosh​ 's comments above.

The Microsoft Terms, as of today for Windows Server per VM:

You are given the choice to cover either:

• the host (2 VMs covered each time the whole host is covered, min 8 core licenses assigned)
• the VMs individually according to the terms in the screen capture above