Microsoft has introduced Product Activation in an attempt to reduce software piracy, especially casual copying amongst home users. Product Activation binds your Windows software to specific computer hardware, in an attempt to prevent installation of the same copy of Windows on multiple computers.
After installing Windows XP, you have 30 days in which to activate your product with Microsoft. This can be done over the Internet or via a phone call. Once your copy of Windows is activated you won't have to worry about this feature again unless you have a habit of changing your hardware around frequently.
Windows XP puts special emphasis on your computer's network adapter. As long as you keep the same NIC, you can change up to five other components without having to re-activate. If your computer doesn't have a NIC, or you change your NIC, you're allowed up to three hardware changes before you must re-activate.
If you have a major disaster and need to re-install Windows XP from scratch, you won't have a problem with Product Activation unless you've made significant changes to your hardware, in which case you'll be informed that your copy of Windows is already registered to another system and you'll need to contact Microsoft by phone.
Microsoft allows up to four activations a year for people who like to tinker with their systems, but this can create major problems in large corporate environments where deployments are done on a large scale. One way roud this is the volume licensing scheme for large corporations. Those participating in a Volume Licensing Plan can obtain a Corporate Edition of Windows XP Professional that requires a valid product key, but not Product Activation.
You can activate your copy of Windows XP Professional at the Windows Welcome Screen, by choosing Start > Activate Windows, or by typing oobe/msoobe /a at a command prompt. Product activation uses TCP/IP ports 80 (HTTP) and 443 (HTTPS).
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