Activation is a form of copy protection, in which each copy of XP must be turned on by registering it with Microsoft. The copy of Windows XP is then uniquely associated with a particular computer, thus preventing pirating of the operating system by using the same disk to upgrade multiple machines.
This is highly controversial, to say the least. The valid reason is that activation can break and require reactivation, which can be inconvenient. The bogus reason is that people raise the valid issue--and make a big deal about it--because they want to freely copy commercial software.
Microsoft has responded to user concerns, it says, by making activation as seamless as possible. New hardware with XP pre-installed doesn't require activation and should never require reactivation, even if significant changes are made to the hardware configuration.
Upgraders will have to activate their software when it is installed; typically, this is done automatically over the Internet or alternatively over the telephone. Microsoft says it's significantly raised the threshold of hardware changes required to force reactivation (which occurs if there are enough changes that XP thinks it's been copied to a new computer).
Probably, Microsoft has been sensitized to this issue, and we'll see how it works out once customers start upgrading to XP en masse. We think people whose real issue is a desire to steal software have blown people's fears of OS activation out of proportion.
By the way, Microsoft will be selling--at a 10 to 15 percent discount--additional OS licenses to users who'd like to use the same original disk to install Windows XP on multiple machines.
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