What Is the Difference Between Active Directory and Azure AD (Entra ID)?

Azure Active Directory (recently renamed Entra ID) is often summed up as “Active Directory in the cloud”. But how accurate is that description? Does Entra ID really let you do everything you could do with your on-prem domain? What are the structural and functional differences between Active Directory and Azure AD?

Active Directory vs. Azure AD

What Is Active Directory?

Active Directory is an on-premise directory service that allows organizations to establish a local Windows Server domain in order to manage large-scale networks. In essence, you can think of AD as a database that stores information about all the users, groups, devices and policies of a Windows environment.

Active Directory domains are centrally governed by domain controllers (DCs), which store this database, authenticate users and apply group policy settings. To avoid outages, multiple domain controllers replicating the same information are used alongside each other. In addition to the hierarchical structure of DCs and regular machines, users and computers in an Active Directory domain can be divided into different organizational units.

Active Directory is used to:


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What Is Azure AD?

Entra ID (formerly Azure Active Directory) is a cloud-based directory service that acts as the identity provider and single-sign on solution for Microsoft 365 apps like Teams, OneDrive and SharePoint. Like Active Directory, Azure AD allows organizations to group users for easier administration and govern access to resources.

Unlike Active Directory, which requires you to set up your own domain controller, Azure AD is hosted entirely by Microsoft. This means you do not have to worry about servers, infrastructure or patches.

Azure AD is used to:

  • Offer single-sign on for cloud applications

  • Provide multi-factor authentication and conditional access

  • Manage Microsoft 365 identities and permissions

  • Govern access to cloud resources

  • Control device settings through Intune/Endpoint Manager

  • Integrate third-party apps

Similarities Between Azure AD and Active Directory

Active Directory and Azure AD serve a similar purpose: Both are directory services that allow organizations to administer users and govern access to resources. Acting as the central authority for the respective tenant or domain, they play a crucial role in provisioning and deprovisioning users as well as determining who is allowed to do what.

Differences Between Azure AD and Active Directory

Active DirectoryEntra ID (Azure AD)
Identity provider for your own domainIdentity provider for M365 apps
Domain controllers on local serversTenant in Entra ID
Authentication through Kerberos, NTLMAuthentication through SAML, OAuth, OpenID
Supports LDAPNo LDAP support
Group Policy ObjectsIntune and Endpoint Manager for device settings
Organizational Units (OUs)Administrative Units (AUs)

The main difference between Active Directory and Azure AD is that one is an on-premise service you need to provide your own infrastructure for and deploy, update and maintain yourself, while the other is a cloud service hosted for you by Microsoft. You still need to manage and configure your own tenant, but don’t have to worry about hardware, setup or maintenance.

Aside from the fundamental difference of Active Directory being local and Azure AD being cloud-based, there are also functional and structural differences. Some mostly come down to different names: Instead of organizational units, Azure AD uses administrative units (AUs). Instead of group policy objects, settings are managed through the Endpoint Manager (Microsoft Intune).

While both services are used to authenticate and authorize users, they support different protocols and standards for doing so. Active Directory uses Kerberos and NTLM (which will be retired soon), while Azure AD uses SAML, OAuth or OpenID. And while Active Directory relies on NTFS permissions, governing access in Entra ID requires you to manage Microsoft 365 groups and follow SharePoint best practices.

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Advantages of Azure AD

A cloud-based service like Azure AD has several advantages over on-premise infrastructure, which mainly come down to convenience and ease-of-use. These are some of the benefits of Azure AD:

  • No upfront costs: You don’t need to set up domain controllers or invest in your own hardware. All you need to get started is a subscription.

  • Easily scalable: With access to Microsoft’s vast cloud infrastructure, you can easily add more users or rent additional storage.

  • Maintained for you: Your tenant is always kept up to date, automatically receiving security patches and new features with no extra work.

  • Available from anywhere: Cloud apps and identities allow your users to sign in from anywhere (as long as they follow your conditional access policies).

Advantages of Active Directory

While cloud service are often touted as the future, it’s worth noting that on-premise infrastructure does have its own strengths and use cases. Advantages of Active Directory include:

  • Can be cheaper long-term: Cloud services may be more convenient, but that convenience comes at a premium. In the long run, investing in your own infrastructure can be cheaper than renting it from someone else. Of course, this calculation depends on the size of your company, your performance needs, equipment cycles and many other factors.

  • More fine-grained control: Operating a local Active Directory gives you slightly more control, which can be especially relevant when it comes to supporting legacy applications or complex, multi-domain environments.

  • Keep sensitive data in-house: There is some information you might not want to store or process in the cloud for security or compliance reasons.

  • Own your risk: Automatic updates are still not a guarantee that your information is secure, as the recent breach of Exchange Online shows. There may be scenarios where you would rather own and manage this risk yourself than depend on a cloud provider.

Azure AD vs. Active Directory: Which Should You Choose?

While it’s important to understand the differences between Active Directory and Entra ID (formerly Azure AD), in practice you don’t have to decide between the two services.

If you’re among the millions of companies using Microsoft 365 for easier collaboration, then there’s no getting around an Entra ID subscription. But that doesn’t mean you have to give up on your on-premise Active Directory domain, either. Read our guide on how to successfully combine Active Directory and Azure AD for more.

Whether you’re using Active Directory, Azure AD or both, the important part is to manage these services efficiently and securely!

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Whether you’re operating your own Active Directory domain, relying entirely on Entra ID or a combination of both, these directory services take time and skill to administer effectively. You need to make sure your users have access to the resources they need – and nothing beyond that!

Managing identities and access can be a major hassle, especially if you have dozens of systems and hundreds of users to contend with. Manually administering that many individual permissions is hopeless. But there is a better way.

With tenfold, our no-code IAM solution, you can automatically provision new users with the access they need based on permission roles. Central, in-depth reporting gives you a clear breakdown of who has access to what, including shared files in Teams or OneDrive. Plus: comprehensive access reviews ensure that no unwanted privileges slip through the cracks.

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About the Author: Joe Köller

Joe Köller is tenfold’s Content Manager and responsible for the IAM Blog, where he dives deep into topics like compliance, cybersecurity and digital identities. From security regulations to IT best practices, his goal is to make challenging subjects approachable for the average reader. Before joining tenfold, Joe covered games and digital media for many years.