Introduction to Azure Active Directory (Azure AD)
Let’s face it—managing identity and access in today’s digital world is no joke. With cyber threats lurking at every corner and employees logging in from anywhere, having a solid identity system is a must. That’s where Azure Active Directory (Azure AD) steps in. It’s Microsoft’s cloud-based identity and access management service, built to secure and manage identities for users, devices, and apps.
So whether you’re logging into Microsoft 365 or securing a third-party SaaS app, Azure AD is working behind the scenes to make sure the right people have access—no more, no less.
Overview of Azure AD Licensing Tiers
Microsoft offers Azure AD in different flavors—each tailored to different needs and budgets. Here’s a quick look:
- Azure AD Free – Basic identity services, great for small organizations or testing
- Azure AD Premium Plan 1 (P1) – Adds advanced security, hybrid identity, and access features
- Azure AD Premium Plan 2 (P2) – Brings top-tier security with Identity Protection and Privileged Identity Management
Let’s break them down.
Azure AD Free Edition
Key Features of Free Tier
The Free edition isn’t just a teaser—it actually provides some useful capabilities:
- Single Sign-On (SSO) to Microsoft 365 and other SaaS apps
- Basic security and usage reports
- Azure AD Join and device registration
- Cloud-based user directory
- Limited self-service password change for cloud users
Who Should Use the Free Plan?
If you’re a startup or a small business just getting into Microsoft 365, the Free edition can cover your basics. You’ll get access to identity tools without spending a dime—pretty good for testing the waters.
Azure AD Premium Plan 1 (P1)
Core Features of P1
This is where Azure AD gets seriously powerful.
Conditional Access Policies
Create dynamic policies that decide who can access what, from where, and how. Think of it as building digital bouncers that only let the right people in under the right conditions.
Self-Service Password Reset (SSPR)
Empower users to reset their own passwords securely—cutting down IT helpdesk tickets dramatically.
Hybrid Identity Support
Using on-prem Active Directory? P1 lets you bridge it with Azure AD via Azure AD Connect and ADFS. Best of both worlds.
Group-Based Access Management
Automate who gets access to what by assigning users to groups. Great for onboarding and offboarding workflows.
Ideal Use Cases for P1
- Businesses with hybrid environments
- Organizations using Microsoft 365
- Teams that need more access control
Azure AD Premium Plan 2 (P2)
Core Features of P2
Ready to take security and compliance up a notch? P2 is for you.
Azure Identity Protection
Detect and respond to suspicious logins, risky users, or impossible travel scenarios with AI-powered risk detection.
Risk-Based Conditional Access
Apply access policies dynamically based on risk level—like prompting for MFA only when risk is high. Check out Conditional Access Policy Guide.
Privileged Identity Management (PIM)
Grant just-in-time admin access to reduce the attack surface. No more standing admin rights lingering around.
Checkout complete guide on Privileged Identity Management Step-by-Step Configuration
Access Reviews & Entitlement Management
Automate reviews of who has access to what. No more “set it and forget it” permissions.
Who Benefits Most from P2?
- Enterprises with strict compliance requirements
- Regulated industries like finance or healthcare
- Organizations managing large teams or admin roles
Azure AD Feature Comparison Table
| Feature | Free | Premium P1 | Premium P2 |
| SSO for SaaS Apps |  |
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| Conditional Access |  |
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| Self-Service Password Reset | Partial | |
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| Hybrid Identity | |
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| Identity Protection | |
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| Privileged Identity Management (PIM) | |
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| Access Reviews | |
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| Group-based Access | |
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| MFA (via Microsoft 365) | (limited) |
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Pricing Breakdown of Azure AD Plans
- Free – $0/user/month
- P1 – ~$6/user/month
- P2 – ~$9/user/month
Not bad when you consider the cost of a security breach or compliance fine.
Real-World Scenarios and Recommendations
- Small Business (Under 50 users) – Start with Free or P1 for SSO and basic MFA
- Medium to Large Enterprises – Go with P1 for hybrid identity and conditional access
- Highly Regulated Environments – P2 is a must for auditing, compliance, and risk mitigation
Common Misconceptions About Azure AD Licensing
“Azure AD is just like on-prem Active Directory”
Not quite. Azure AD is not a 1:1 replica—it’s cloud-first and identity-centric, not a full domain controller replacement.
“I get all Azure AD features with Microsoft 365”
Some, yes—but not all. Many people think M365 Business Premium includes P1 or P2 features. It does Azure AD Premium Plan P1.
Integration With Microsoft 365 and Other Services
Your Microsoft 365 account depends on Azure AD—it’s how users are authenticated. Plus, Azure AD also integrates with:
- Salesforce
- Dropbox
- ServiceNow
- Google Workspace
- Custom web apps via SAML or OAuth
How to Upgrade or Downgrade Azure AD Editions
- Go to Microsoft 365 Admin Center
- Click Billing > Your Products
- Choose Azure AD and select Change License
- Add or remove the appropriate P1 or P2 licenses
Azure AD and Microsoft Entra – What Changed?
As of mid-2023, Azure AD is now called Microsoft Entra ID. Functionality remains the same, but the branding aligns with Microsoft’s broader security ecosystem.
So, don’t panic when you don’t see “Azure AD” anymore—it’s still there, just with a new name.
Conclusion
Choosing the right Azure AD edition isn’t just about ticking boxes—it’s about matching your security needs with your growth goals. The Free tier gives you the basics, P1 is great for most businesses, and P2 is a security powerhouse. Take the time to evaluate what features matter most, and don’t be afraid to test drive a premium license before committing.
FAQs
- What is the main difference between P1 and P2?
P2 includes everything in P1, plus advanced tools like Identity Protection, risk-based access, and Privileged Identity Management. - Is Azure AD Free enough for Microsoft 365?
For basic use, yes. But if you want security features like Conditional Access or SSPR, you’ll need at least P1. - Can I mix and match Azure AD licenses?
Yes! You can assign P1 or P2 licenses to specific users based on their role or access needs. - How do I check which Azure AD edition I have?
Go to Microsoft 365 Admin Center > Billing > Licenses to see what’s assigned to users. - Is there a trial for Premium features?
Absolutely. Microsoft offers 30-day trials for P1 and P2—perfect for testing before you buy.
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