Microsoft has announced that it will give away its Virtual Server R2 for free, a move seen as reflecting the furiously competitive virtualisation software market.

This is Microsoft's second price cut for its flagship virtualisation product, which can host multiple virtual machines running either Linux or Windows.

Virtual Server 2005 originally cost US$999 and $499 for the Enterprise and Standard editions, respectively, when released in September 2004. Microsoft then released Virtual Server R2 at $199 and $99 for the Enterprise and Standard editions, respectively, in December.

Longtime virtualisation market leader VMware, which already had a free product called VMware Player, responded in February by making its GSX Server free. Meanwhile, Linux-based vendors such as XenSource and Virtual Iron Software are readying new or updated versions of their virtualisation software.

With Monday's change, Microsoft is eliminating the Standard edition and making its Enterprise edition available for download at no charge.

Zane Adam, director of product marketing for the Windows Server division, acknowledged that the move is partly a tactical reaction to other vendors' moves. "But even before R2 arrived, we were already signalling this was the direction we were going in," he said.

Microsoft entered the virtualization market in 2003 when it bought Virtual PC for the Macintosh and the then-unreleased Virtual Server from Connectix. It claims 5,000 customers for all versions of Virtual Server Monday, with a total of 700,000 downloads of the product. Adam declined to speculate on how many users Microsoft hopes to gain by making the software free.

Microsoft has itself played a role in the rapid commoditisation of the virtualization software market. A year ago, it said it would fold a hypervisor - software that manages virtual machine - into R2 of the upcoming Longhorn Windows Server, which is expected around 2009.

"We think that virtualisation will eventually be just like having wheels on your car; it's just going to be there," Adam said.