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I've heard these two technologies used interchangeably to describe replicating data from one location to another. I understand what each technology is, but I'm unsure of how they relate to each other. Does DFSR use BITS as the transfer mechanism? Any clarification would be appreciated.

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You can use either to replicate data however these technologies are unrelated. As Evan said BITS is a way to manage bandwidth utilization and allow data to be tranfered between hosts without impacting any other network transfers. IE if I copy a file between server S and server D using explorer, explorer will use up as much bandwith as possible. If I start a second file copy my bandwidth will be split between the 2 copies equally. If I make my second copy a BITS transfer instead there will be NO impact at all to the first copy. My second copy will finish when there is free bandwidth avaialble to do so, it if I start another explorer copy from server S to server Z my BITS copy will slow down or stop so as not to impact the copy job

DFS-R is the replacement for file replication services. It will use up as much bandiwth as possible but, on file close, will only send the changed blocks to the servers in the replication group (either on a schedule or continuously- it's configurable we'll presume continuous in the example). IE if I change file myfile.doc immediate notofication is sent out to the other replication members and the changed blocks are sent out regardless of the amount of bandwith required, hopefully it's not alot but if it was a new file the the entire file contents would be copied.

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DFSR can also be configured to throttle how much bandwidth it uses. The throttle is always a fixed rate though - unlike BITS, it won't slow itself down when other processes are doing I/O. –  Richard Beier Apr 1 '10 at 17:49

They aren't related at all.

There's a nice video at Channel9 talking about how DFS-R works.

BITS isn't really a "replication" protocol-- it's just gives you a way to "trickle" downloads via HTTP using "spare" network bandwidth.

DFS-R performs delta transfers of data (moving only the changed data) and doesn't use HTTP for its transport protocol.

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