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External identities in Azure: B2B collaboration and B2C customer sign-in

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Azure architecture and services

External identities in Azure: B2B collaboration and B2C customer sign-in

Short Summary

In this lesson, you’ll learn what “external identities” means in Azure and why you usually don’t want to create full internal employee accounts for every outside person. You’ll see the difference between Business-to-Business (B2B) collaboration (partners/guests) and Business-to-Customer (B2C) customer sign-in for public apps. You’ll also learn the key mindset: “external” still needs strong access control and regular review.

Learning Objectives

By the end of this lesson, you will be able to:

  • Define external identities and explain why they matter.
  • Differentiate B2B collaboration from B2C/Customer Identity and Access Management (CIAM) scenarios.
  • Identify where external users authenticate and what your tenant stores about them.
  • Explain why external access still needs policies and governance.

Core Concepts

What “external identities” means

External identities are ways to let people outside your organization sign in to your apps or resources without turning them into full internal employees in your directory. In Microsoft’s terminology, these scenarios are covered under Microsoft Entra External ID and Microsoft Entra ID (formerly Azure Active Directory (Azure AD)).

A useful mental model from Microsoft’s docs is that there are two common tenant configurations:

  • A workforce tenant: your “main” tenant that contains employees and internal resources.
  • An external tenant: a separate tenant configured for customer-facing apps and customer accounts.

Business-to-Business (B2B) collaboration

Business-to-Business (B2B) collaboration is for working with partners, vendors, and other organizations in a workforce tenant.

Typical pattern:

  • You invite an external person (often as a guest user).
  • You grant them access to specific apps or resources (for example, one app, one SharePoint site, one set of groups).
  • They usually sign in with an identity they already have (work/school, Microsoft account, or another allowed identity).

Key idea to remember: in B2B collaboration, your tenant keeps a guest user representation for access decisions, but the guest is generally not “given an employee password in your tenant.”

Business-to-Customer (B2C) customer sign-in (CIAM)

Business-to-Customer (B2C) is the pattern for customer-facing applications. In modern Microsoft docs, you’ll often see this described as Customer Identity and Access Management (CIAM) using Microsoft Entra External ID in an external tenant.

Typical pattern:

  • Your app supports sign-up and sign-in for large numbers of customers.
  • Customers can use sign-in methods designed for consumers (for example, email-based sign-in and social identity providers).
  • Customer accounts are managed in the external tenant that you control for those apps.

You may still see Azure AD B2C referenced in older content; Microsoft documents it as a legacy CIAM solution compared to External ID.

Quick rule of thumb

  • B2B = partners/guests accessing your organization’s resources (workforce tenant)
  • B2C/CIAM = customers signing in to your application (external tenant)

Security mindset: external ≠ trusted

External identities reduce account lifecycle overhead (you’re not creating and managing internal employee accounts for everyone), but they do not remove security work.

You still need:

  • Access control: least privilege (who can access what).
  • Policies: sign-in protections such as Conditional Access (CA) and Multi-Factor Authentication (MFA) where applicable.
  • Governance: periodic reviews so guest/customer access doesn’t silently grow or linger.

Practical Understanding

Practical Situation 1: When you see “partner uses their work account,” think B2B collaboration

A company wants to share an internal application with a vendor. The vendor should sign in using their existing work identity, and the company does not want to manage a separate internal password for each vendor employee.

How to think about it: This is Business-to-Business (B2B) collaboration: invite external users (often as guests) and grant access to only the apps/resources they need.

Common misunderstanding: “Guests must have passwords stored in my tenant.” In B2B collaboration, your tenant stores a guest user object for access decisions, and the guest typically signs in with an identity they already have.

Practical Situation 2: When you see “customers sign up to my public app,” think B2C/CIAM

A company has a public web app for consumers. The app needs sign-up and sign-in for many users and wants common sign-in options (email-based sign-in and social sign-in).

How to think about it: This maps to B2C/CIAM using Microsoft Entra External ID in an external tenant: you’re building a customer sign-in experience for your app, not collaborating in your workforce tenant.

Common misunderstanding: “B2B and B2C are basically the same because both are external.” They target different users and different goals: partner collaboration vs customer sign-in for your application.

Practical Situation 3: When you see “let’s create internal accounts for everyone,” think external identity patterns

A team is tempted to create a standard internal employee-style account for each outside person “so it’s simpler.” Over time, password resets, onboarding/offboarding, and stale accounts become painful.

How to think about it: External identities exist to reduce that operational burden. Choose the model that matches the user type (B2B guests vs B2C customers), then grant only the access required.

Common misunderstanding: “External identities mean no management.” You still manage access and policies—you’re just avoiding unnecessary employee-style account lifecycle work.

Practical Situation 4: When you see “partners must be restricted and reviewed,” think governance

A company invites many partner guests and wants them restricted to a small set of apps. Security also wants stronger sign-in requirements (like MFA) and regular reviews so old guest access doesn’t linger.

How to think about it: Inviting external users is only step one. Apply least privilege, enforce sign-in policies (for example, Conditional Access), and review access over time.

Common misunderstanding: “Once invited, they automatically get broad access.” External users should be scoped deliberately, and their access should be reviewed regularly.

Common Pitfalls

  • Mistake: Treating every external user like a full internal employee account. Correction: Use B2B for partners/guests and B2C/CIAM for customers, then grant only the access needed.

  • Mistake: Mixing up B2B and B2C. Correction: Anchor on the user type and goal: partners collaborating (B2B) vs customers signing in to your app (B2C/CIAM).

  • Mistake: Assuming “external identities” means you can skip security controls. Correction: You still need access control, sign-in policies (like Conditional Access), and governance.

  • Mistake: Thinking a guest user equals “a password I manage.” Correction: In B2B collaboration, your tenant stores a guest representation for access decisions, and the guest typically signs in using an identity they already have.

  • Mistake: Giving external users the same default access as employees. Correction: Start with least privilege, grant only what’s required, and review access regularly.

Check Your Understanding

  1. In one sentence, explain what “external identities” helps you avoid compared to creating full internal accounts for every outside user.
  2. Describe a real example where B2B fits, and explain what the external user is accessing.
  3. Describe a real example where B2C/CIAM fits, and explain what the customer is signing in to.
  4. Explain “guest user object” vs “guest credentials” in simple terms.
  5. Write a 3-step checklist you would use before granting external access (scope, policy, review).

Further Reading