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  1. Microsoft Entra
  2. Entra External ID
Microsoft Entra External ID for US businesses

The opening decision is which tenant these outside people live in, and changing your mind about it later is expensive.

Your workforce tenant holds staff and admits business guests through collaboration. An external tenant exists solely for applications you publish to consumers and business customers. The two behave differently on single sign-on, on entitlement management and on branding, and building in the wrong one leaves you with a migration rather than a setting to change.

Book an external identity design sessionSee the two models compared
Microsoft Entra External ID for US organizations
  • Two configurationsWorkforce tenant or external tenant
  • No credentials heldGuests authenticate at their home org
  • Trust settingsAccept MFA and device claims from partners
  • Monthly active usersThe billing shape for External ID
What it covers

Seven things that determine how anybody outside your company reaches your systems.

External ID gathers together the ways of working with people who are not your employees, where each of them arrives holding their own identity, whether a corporate account, a government-issued one or something from Google or Facebook. What separates the models below is exactly what tells you which one you should be building in.

Workforce tenant or external tenant, and they are nothing like interchangeable

The workforce tenant is the ordinary one, containing your staff, your internal applications and your resources, where colleagues work with partners and guests through collaboration. The external tenant exists purely for applications you publish outward, holding the app registrations and a directory of customer accounts kept entirely apart from where your employees live.

Collaboration, where the guest never holds a credential with you at all

The wording here is precise, and worth being precise about: no credentials exist for a business guest. They authenticate against their own organization or identity provider, and yours then checks whether they are eligible to collaborate. A user object does get created, sitting in the same directory as your staff, and you manage it exactly like any other, adding it to groups and assigning permissions.

Direct connect, which creates no guest account whatsoever

A mutual trust arrangement with another Entra organization, which is what makes shared channels in Teams work. People authenticate against their own organization and receive a token from yours. Unlike ordinary collaboration, nobody is added to your directory as a guest, and that is a materially different governance position rather than an implementation detail.

Trust settings, so partners are not challenged twice

You can choose to trust the multifactor and device compliance claims coming from somebody home organization. With those trust settings on, Entra reads their credential for an existing multifactor claim or a device identifier, works out whether your policies were already satisfied, and lets them straight through if so. If not, it starts a challenge back in their own tenant. That one setting removes most of the friction partners complain about.

External tenants for consumer and customer-facing applications

Registration flows people complete themselves, defining the steps to sign up and which methods are permitted, whether email and password, a one-time code, or an existing Google or Facebook account. Branding using your own images, colors, logos and wording throughout the sign-in. Attributes both standard and custom collected during sign-up, and analytics covering what people actually do afterward.

The older consumer identity product is legacy and closed to new customers

From 1 May 2025 the older Azure AD B2C product can no longer be purchased by new customers, and it is described as a legacy approach to customer identity. Any new consumer identity work belongs in an external tenant instead. An existing B2C estate is now a migration conversation rather than a platform anybody should be extending.

The cross-tenant settings, which is where the actual controls live

Cross-tenant access settings govern collaboration with other Entra organizations and across the different Azure clouds, defining policy in both directions for ordinary collaboration and for direct connect alike. A separate set of external collaboration settings covers people and organizations that are not on Entra at all. Both can be configured through the Graph APIs as well as through the portal.

The decision to get right first

Build a customer-facing application in the wrong tenant and single sign-on will not behave the way anybody assumed it would.

The published comparison is where this becomes concrete, and it is the single sign-on row that catches product teams out.

  • Inside a workforce tenant, single sign-on reaches every application connected to Entra, and the illustration given covers Microsoft 365, applications on your own servers, and other subscription software such as Salesforce or Workday.
  • Inside an external tenant, single sign-on reaches the applications registered in that tenant and nothing else. Reaching Microsoft 365 or any other Microsoft subscription application is stated plainly as unsupported.
  • Entitlement management and the Microsoft cloud settings are both supported in a workforce tenant and simply not applicable in an external one, so whatever access package model you already run does not stretch to cover customer accounts.
  • The rule of thumb that survives contact with reality: if these people need to reach Microsoft applications and your internal resources, they are guests in the workforce tenant. If they are customers of something you publish, they belong in an external tenant and should never come near your employee directory at all.
Ask us which model your scenario needs
How we approach it

Four things that stop outside access growing into an open-ended liability.

Inviting a guest takes about ten seconds and is the easiest thing anybody ever does in Entra. Every hard part of external identity happens later, and none of those parts is hard at all if somebody designed for them at the beginning.

We settle the tenant question before anything is built

The workforce tenant is for anybody needing to reach Microsoft applications and your internal resources. The external tenant is for customers of something you publish, where single sign-on to Microsoft 365 is explicitly unsupported and entitlement management does not apply at all. Getting this wrong leaves you with a migration rather than a setting to change, and product teams tend to find out very late.

Trust settings get switched on so the security stops causing friction

Where your Conditional Access demands multifactor or a compliant device, trusting the claim coming from the partner own organization means nobody gets challenged twice for something they already did five minutes ago. That mechanism is described precisely in the documentation, and it is reliably the single change that stops partners complaining about your security.

We govern guests with packages and reviews, not invitations

Entitlement management is pointed at directly for handling outside identity at scale, where approving a request provisions the guest account and assigns it to the groups, applications and SharePoint sites in the package, with an end date attached. Add reviews on top and guest access stops being a permanent grant and becomes a governed one.

Direct connect gets treated as an entirely separate governance question

These people are never added to your directory as guests, which means they appear on no guest list anybody reviews and get caught by no guest access review. That is perfectly fine if you know it and a genuine blind spot if you do not, so every shared channel relationship gets its own inventory entry and a named owner.

Where this matters most

Six US situations that force the external identity question.

The whole thing is framed around two audiences: companies wanting secure collaboration with other businesses, and developers who need authentication and customer identity handled for an application they are building.

A firm collaborating with clients and subcontractors daily

Law firms, agencies, engineering practices and consultancies spend their working lives in shared spaces with people from other companies. Guests in the workforce tenant sign in with their own corporate credentials, with no password of theirs ever held by you, and get added to whichever groups and Teams they need. The value is in doing that through access packages carrying an expiry rather than through individual invitations, because otherwise the guest list only ever gets longer.

A business launching a customer-facing application

An external tenant, with registration flows people complete themselves, sign-in by email and password, by a one-time code or through a social account, branding done per application, and analytics on what people actually do. Crucially, customer accounts never touch the employee directory, which matters for security, matters for licensing, and for a consumer application matters again for privacy under CCPA and the state laws that followed it.

A regulated firm that cannot loosen its controls just because a partner asked

Conditional Access reaches collaboration guests and direct connect users exactly as it reaches your own staff, which is precisely what a SOC 2 auditor or an examiner wants to be told. Trust settings then let you accept a multifactor claim or a device identifier from the partner own tenant where those requirements were already met, so the control holds without anybody being prompted twice.

An operator working in Teams shared channels with suppliers

Direct connect establishes mutual trust with the supplier own Entra organization, which is what makes shared channels in Teams work for chat, calls, files and shared applications. People reach the channel without switching organizations or signing in with a second account, and none of them is added to your directory as a guest.

A group that has grown into several Entra tenants

The multitenant organization capability makes collaboration work across Microsoft 365 for a company running more than one Entra instance, and cross-tenant synchronization is a one-directional service letting people reach resources without an invitation email or a consent prompt in each tenant. For an American group partway through an acquisition, that fits far better than treating colleagues as though they were guests.

An organization still running Azure AD B2C

From 1 May 2025 the older B2C product can no longer be bought by new customers, and it is openly described as legacy. Existing estates carry on working, but any new consumer identity work belongs in an external tenant, and the question of when and how you move is one worth answering on purpose rather than by drifting into it.

Three positions

How US organizations let outsiders in today.

The middle column is close to universal. Guests were invited one by one, by whoever happened to need them that week, every invitation worked perfectly, and nothing in the years since has ever removed a single one.
External people use their own identity
Designed external identity modelYes
Ad hoc guest invitationsYes
Shared accounts and workaroundsNo
Access granted through a defined process
Designed external identity modelYes
Ad hoc guest invitationsNo
Shared accounts and workaroundsNo
Partner MFA claims trusted
Designed external identity modelYes
Ad hoc guest invitationsRarely
Shared accounts and workaroundsNot applicable
Conditional Access applied to guests
Designed external identity modelYes
Ad hoc guest invitationsSometimes
Shared accounts and workaroundsNo
Access expires without intervention
Designed external identity modelYes
Ad hoc guest invitationsNo
Shared accounts and workaroundsNo
Guests reviewed on a schedule
Designed external identity modelYes
Ad hoc guest invitationsNo
Shared accounts and workaroundsNot applicable
Customer accounts kept out of the employee directory
Designed external identity modelYes
Ad hoc guest invitationsNot applicable
Shared accounts and workaroundsNo
Partner relationships have a named owner
Designed external identity modelYes
Ad hoc guest invitationsNo
Shared accounts and workaroundsNo
Cross-tenant policy set deliberately
Designed external identity modelYes
Ad hoc guest invitationsDefault
Shared accounts and workaroundsDefault
Answerable question: who has access?
Designed external identity modelYes
Ad hoc guest invitationsNo
Shared accounts and workaroundsNo
Feature
Designed external identity model
Ad hoc guest invitations
Shared accounts and workarounds
External people use their own identity
YesYesNo
Access granted through a defined process
YesNoNo
Partner MFA claims trusted
YesRarelyNot applicable
Conditional Access applied to guests
YesSometimesNo
Access expires without intervention
YesNoNo
Guests reviewed on a schedule
YesNoNot applicable
Customer accounts kept out of the employee directory
YesNot applicableNo
Partner relationships have a named owner
YesNoNo
Cross-tenant policy set deliberately
YesDefaultDefault
Answerable question: who has access?
YesNoNo
The two models

Workforce tenant set against external tenant, on the points that decide it.

Taken from the published comparison. It is the distinctions in the lower half that decide whether a given design is viable at all.

Aspect

Primary scenario

External ID in workforce tenants
Your staff work alongside business guests, each of whom signs in to your resources using whichever identity they already have
External ID in external tenants
You publish applications outward to consumers and business customers, with External ID handling the sign-in experience

Aspect

Intended for

External ID in workforce tenants
Business partners from external organizations such as suppliers, partners, and vendors
External ID in external tenants
Consumers and business customers of your application

Aspect

Where users are managed

External ID in workforce tenants
In the same tenant as your staff, normally marked as guest accounts
External ID in external tenants
In an external tenant kept apart from the employee directory, carrying different default permissions

Aspect

Single sign-on

External ID in workforce tenants
Reaches every application connected to Entra, Microsoft 365 and your own servers included
External ID in external tenants
Reaches only what is registered in that external tenant, never Microsoft 365 or the other Microsoft services

Aspect

Branding

External ID in workforce tenants
Microsoft design by default, customizable with your company branding
External ID in external tenants
Neutral by default with no Microsoft branding, customizable per organization or per application

Aspect

Entitlement management

External ID in workforce tenants
Supported
External ID in external tenants
Not applicable

Aspect

Microsoft cloud settings

External ID in workforce tenants
Supported
External ID in external tenants
Not applicable

Aspect

Typical example

External ID in workforce tenants
Inviting somebody to sign in to your Microsoft applications, or to join a team as a guest
External ID in external tenants
A branded sign-in for whoever uses your consumer mobile app, with the usage tracked afterward
AspectExternal ID in workforce tenantsExternal ID in external tenants
Primary scenarioYour staff work alongside business guests, each of whom signs in to your resources using whichever identity they already haveYou publish applications outward to consumers and business customers, with External ID handling the sign-in experience
Intended forBusiness partners from external organizations such as suppliers, partners, and vendorsConsumers and business customers of your application
Where users are managedIn the same tenant as your staff, normally marked as guest accountsIn an external tenant kept apart from the employee directory, carrying different default permissions
Single sign-onReaches every application connected to Entra, Microsoft 365 and your own servers includedReaches only what is registered in that external tenant, never Microsoft 365 or the other Microsoft services
BrandingMicrosoft design by default, customizable with your company brandingNeutral by default with no Microsoft branding, customizable per organization or per application
Entitlement managementSupportedNot applicable
Microsoft cloud settingsSupportedNot applicable
Typical exampleInviting somebody to sign in to your Microsoft applications, or to join a team as a guestA branded sign-in for whoever uses your consumer mobile app, with the usage tracked afterward
How an engagement runs

Five steps, and the first one sets the price of every step after it.

Six to twelve weeks as a rule, depending on whether an external tenant and application work are included. The identity design itself is quick. Reaching agreement on how guests get governed is what fills the calendar.
  1. 1

    Choose the tenant configuration per scenario

    Workforce tenant for the partners, suppliers and vendors who need to reach your Microsoft applications and internal resources. External tenant for the consumers and business customers of something you publish. Each population gets mapped explicitly, because companies very often have both and have been treating them as a single problem.

  2. 2

    Design cross-tenant access settings

    Policy in both directions for collaboration and for direct connect, written per partner organization rather than left sitting on the default. A decision per partner on whether to trust their multifactor and device compliance claims. And the external collaboration settings covering organizations and identity providers that are not on Entra at all.

  3. 3

    Put guest access inside a governed process

    Access packages so that partners ask for what they need, somebody named decides, and the result carries an end date. Approving a request provisions the guest account and assigns it to the groups, applications and SharePoint sites the package covers. Reviews attach to those assignments so recertification happens inside the same model rather than beside it.

  4. 4

    Apply Conditional Access to external users deliberately

    The same policy framework covers guests as covers your own staff, and that is a strength rather than an inconvenience. Trust settings go in wherever a partner has already satisfied the requirement, so the control holds without challenging somebody twice, and whatever ends up excepted is written down rather than assumed.

  5. 5

    Build out the external tenant, where that is part of the scope

    The registration flows people complete themselves, the sign-in methods permitted including one-time codes and social providers where those make sense, branding done per application, the attributes collected during sign-up, and a decision between an emailed code and a text message for the second factor. Automation through Graph wherever these flows need to be repeatable rather than clicked through once.

Straight answers

What organizations ask about Entra External ID.

The workforce tenant is the ordinary one holding your staff, your internal applications and your resources, where collaboration lets colleagues work alongside outside partners and guests. The external tenant exists purely for applications you publish outward to consumers or business customers, holding the app registrations and a directory of customer accounts kept well away from where your employees live.

If these people need to reach Microsoft applications or anything internal, they are guests in your workforce tenant. If they are customers of something you publish, they belong in an external tenant. What settles it is single sign-on. A workforce tenant carries it to every application connected to Entra. An external tenant carries it only to what is registered in that tenant, and explicitly never to Microsoft 365.

No. There are no credentials associated with a business guest at all. They authenticate against their own organization or identity provider, and yours then checks whether they are eligible to collaborate. A user object does appear in your directory so that permissions and group membership can be managed, but the credential itself remains theirs and stays with them.

It establishes mutual trust with another Entra organization so that shared channels in Teams work, with people authenticating against their own organization and receiving a token from yours. Unlike ordinary collaboration, nobody is added to your directory as a guest, which means these people appear in no guest inventory and no guest access review anywhere.

Yes. Conditional Access applies to collaboration guests and direct connect users exactly as it applies to your own permanent staff. There is also a mechanism well worth using: trusting the multifactor and device compliance claims from somebody home organization, so a partner who has already satisfied the requirement is not put through it a second time.

The mechanism is precise. With trust settings enabled, Entra reads the credential during authentication looking for an existing multifactor claim or a device identifier, and works out whether your policies were already satisfied. If they were, the person reaches your shared resource without further interruption. If they were not, the challenge is raised in their own tenant rather than in yours.

Entitlement management, which is pointed at directly for handling outside identity and access at any scale, automating the request workflow, the assignment, the review and the expiry. Approving somebody provisions the guest account and assigns it to the groups, applications and SharePoint sites in the package, with an end date attached from the outset. Reviews then recertify whatever is still there.

Corporate accounts, government-issued ones, and social providers such as Google or Facebook are all named. In collaboration you can invite somebody holding an Entra account, a consumer Microsoft account, or whichever social identities you have enabled. In an external tenant the permitted methods are set in the registration flow, and can run to email and password, a one-time code, or a social account.

Not for anything new. From 1 May 2025 the older B2C product cannot be purchased by new customers, and it is described as a legacy approach to customer identity. Existing tenants carry on working, but new consumer identity work belongs in an external tenant, and any B2C estate you already run deserves a deliberate plan rather than an assumption that it will be fine indefinitely.

In an external tenant there are two second factors available. A one-time code sent by email, which the person is prompted for after signing in, and a code sent by text message, available to anybody signing in with email and password, with an emailed code, or with a social account. Both are configured through a Conditional Access policy alongside the sign-up and sign-in flows.

Licensing and billing here run on monthly active users. That is a completely different shape from per-seat licensing and it changes how you forecast, because the cost tracks how many outside people actually sign in rather than how many accounts exist in the directory. We size it against your expected usage rather than quoting a rate that may well have moved by the time you read it.

Nearly all of it. Every feature is supported for automation through the Graph APIs, with a single documented exception around identifying which organizations you belong to, and that one has named workarounds. The cross-tenant access APIs create exactly the same collaboration and direct connect policies you would configure in the portal, and the invitation management resource lets you build an onboarding experience of your own design.

That is a different capability entirely. The multitenant organization feature exists for a company running more than one Entra instance, letting collaboration across Microsoft 365 work seamlessly in Teams and elsewhere. Cross-tenant synchronization is a one-directional service that lets people reach resources without an invitation email or a consent prompt in every tenant. For an American group partway through a roll-up, that usually fits far better than inviting everybody as guests.

Yes, and by two different routes. Self-service sign-up flows let guests register themselves for an application, with the experience customized to accept a work, school or social identity and to collect whatever information you need along the way. Or entitlement management, where policies let people from other organizations request access and be provisioned once somebody approves. The second is considerably the more governed of the two.

Each engagement is scoped individually, according to whether external tenant and application work is included, how many partner organizations need their own cross-tenant settings, and whether guest access is being pulled into entitlement management at the same time. The tenant configuration decision comes first, takes very little time, and is genuinely worth settling before any development starts. Quoted per engagement.
Designing the model

Fifteen questions that keep external access governed.

The first block chooses the model, the second sets the controls, and the third covers the half that is nearly always absent: what actually happens on the day the relationship ends.

Which model

  • Do they need Microsoft 365 access?
    Then they are guests in the workforce tenant.
  • Are they customers of an app you publish?
    Then an external tenant.
  • Is Teams shared channel collaboration the need?
    That is B2B direct connect.
  • Do you have an existing Azure AD B2C estate?
    Closed to new customers since May 1, 2025.
  • Are you multi-tenant internally?
    Cross-tenant synchronization may fit better.

Controls

  • Are cross-tenant access settings configured?
    Inbound and outbound, per organization.
  • Do you trust partner MFA claims?
    It removes double challenges.
  • Do you trust partner device compliance?
    Same mechanism, higher bar.
  • Which identity providers are permitted?
    Corporate, government-issued, or social.
  • Is Conditional Access applied to guests?
    It can be, exactly as for employees.

Ending access

  • Who removes a guest when a project ends?
    Usually nobody, which is the problem.
  • Are access packages governing guest access?
    Entitlement management handles expiry.
  • Are guests reviewed on a schedule?
    Access reviews cover them explicitly.
  • Do direct connect users appear anywhere?
    They are not guests in your directory.
  • Who owns each partner relationship?
    A connected organization needs an owner.
Related reading

The pages around this one.

Entra Entitlement Management

How partner access gets asked for, approved and eventually expired, rather than simply invited.

Learn more

Guest and external access governance

The cleanup and governance program for the guests you already have.

Learn more

Conditional Access

The policy framework that covers outside people in exactly the way it covers your own staff.

Learn more
Next step

Go and count the guest accounts, then count how many of them anybody could justify.

The distance between those two numbers is the whole reason to design this properly rather than carry on inviting people one at a time. It is also a number that does nothing but grow until somebody puts a process around it.

Book an external identity design sessionSee Microsoft Entra services

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Microsoft Entra Conditional Access Design

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