Custom Windows Server Standard VM on Azure: It Works, But Is It Licensing Compliant?

Hi everyone,

I wanted to share a recent technical experience where I successfully created and deployed a Windows Server Standard VM on Azure using a fully custom image.

I started by downloading the official Windows Server Standard Evaluation ISO. I created a Generation 2 VM in Hyper-V and completed the OS setup using the Desktop Experience edition. Once the configuration was done, I ran sysprep to generalize the image.

After that, I converted the disk from VHDX to VHD in fixed format, which turned out to be a critical step because Azure does not accept dynamic disks. The resulting file was around 127 GB, so I uploaded it to a premium storage account container to ensure performance.

From there, I created a Generation 2 image in Azure and deployed a new VM from it. I then activated the Standard edition with a valid product key.

Everything worked smoothly, but I’m still unsure whether this method is fully compliant with Microsoft’s licensing policies.

Specifically, I’m trying to understand if going from an Evaluation ISO to sysprep, upload, deployment, and activation in Azure is a valid and compliant scenario when not using BYOL with Software Assurance or a CSP license. 

Has anyone gone through this process or has any insights on the compliance aspect?

Thanks in advance for any guidance or clarification.