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This is in the context of a web server.

Would there be a significant performance penalty if a widows user account is created for each client? What if you have several thousand of clients?

I am asking this because it will simplify the authentication for FTP and Database access.

Otherwise i need to create 2 separate user databases for FTP and DB.

And also what is the standard way web hosts do this?

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And also what is the standard way web hosts do this?

They use active directory ;) And ofllow the guideliney set forth by Microsoft for hosting operations (check http://www.iis.net/). And they license per SPLA, btw, which is a legal requirement.

No impact then. AD scales pretty nicely.

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