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.

- 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
Seven things that determine how anybody outside your company reaches your systems.
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.
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.
Four things that stop outside access growing into an open-ended liability.
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.
Six US situations that force the external identity question.
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.
How US organizations let outsiders in today.
| Feature | Designed external identity model | Ad hoc guest invitations | Shared accounts and workarounds |
|---|---|---|---|
External people use their own identity | Yes | Yes | No |
Access granted through a defined process | Yes | No | No |
Partner MFA claims trusted | Yes | Rarely | Not applicable |
Conditional Access applied to guests | Yes | Sometimes | No |
Access expires without intervention | Yes | No | No |
Guests reviewed on a schedule | Yes | No | Not applicable |
Customer accounts kept out of the employee directory | Yes | Not applicable | No |
Partner relationships have a named owner | Yes | No | No |
Cross-tenant policy set deliberately | Yes | Default | Default |
Answerable question: who has access? | Yes | No | No |
Workforce tenant set against external tenant, on the points that decide it.
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
Five steps, and the first one sets the price of every step after it.
- 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
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
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
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
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.
What organizations ask about Entra External ID.
Fifteen questions that keep external access governed.
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.
The pages around this one.
Entra Entitlement Management
How partner access gets asked for, approved and eventually expired, rather than simply invited.
Guest and external access governance
The cleanup and governance program for the guests you already have.
Conditional Access
The policy framework that covers outside people in exactly the way it covers your own staff.
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.
Related Services
Explore more solutions that work great with this service
Guest Access Governance
External sharing governed, not guessed
Learn moreMicrosoft Entra Entitlement Management
Access packages, catalogs and time-boxed entitlements
Learn moreMicrosoft Entra Access Reviews
Entra access review programs for US organizations: entitlement
Learn moreMicrosoft Entra Conditional Access Design
Conditional Access design and review for US organizations:
Learn moreMicrosoft Entra ID Governance
Entra ID Governance implementation for US organizations: automating
Learn moreMicrosoft Entra
Identity and access management solutions
Learn more