Microsoft Entra External ID Adds OpenID Connect Support for Seamless External Identity Federation

Microsoft is continuing its evolution of cloud-based identity management with the unveiling of OpenID Connect (OIDC) identity provider support for Entra External ID—a move poised to fundamentally reshape the way organizations blend security, scalability, and user experience in authentication workflows. With the growing prevalence of digital transformation and external collaboration, seamless identity federation is no longer a luxury; it’s a necessity. At its core, this update allows organizations to leverage powerful standards, integrating with external identity providers such as Amazon, Okta, Auth0, personal Microsoft accounts, and Azure AD B2C. The implications are profound, ranging from streamlined customer and partner onboarding to elevated conversion rates and reduced friction in seamless sign-in and sign-up experiences.

Revolutionizing External Identity Management: Entra External ID in Focus​

Microsoft Entra External ID stands as the company’s flagship for external identity management. It enables businesses to securely manage access for partners, customers, and guests—distinct from internal workforce identities. Entra External ID arms organizations with a suite of features: customizable sign-in experiences, intuitive self-service registration, robust user activity analytics, and advanced tools for managing external collaboration without compromising on security.
With the addition of OpenID Connect support, Microsoft is solidly aligning Entra External ID with modern standards for federated authentication, removing the technical fragmentation that once stymied efficient collaboration with outside entities.

How OpenID Connect Elevates Entra External ID​

OpenID Connect is an authentication protocol built atop OAuth 2.0, designed to confidently verify user identities and convey essential profile information in a secure, standard way. At the heart of OIDC is the ID token—a cryptographically signed proof that asserts identity and can enable Single Sign-On (SSO). By embracing OIDC, Entra External ID:

• Simplifies sign-in and sign-up by letting users access applications with existing credentials from trusted providers (Amazon, Okta, Auth0, personal Microsoft accounts, etc.).
• Reduces password fatigue and security risks by reducing the need for yet another set of credentials.
• Enables organizations to easily extend access to partners, customers, or guests through identity federation—a practice where identities from an external provider are accepted seamlessly, as if they were internally managed.
• Supports common Customer Identity and Access Management (CIAM) use cases where frictionless onboarding, consent, and self-service account management are key to business success.

Microsoft’s official stance is that this approach, grounded in internationally recognized standards, offers “two major benefits: it facilitates partner integration through identity federation and allows users to sign in with their existing credentials rather than creating new ones. This seamless approach fosters partnerships, boosts conversion rates, and enhances user satisfaction.”

Key Scenarios: Unlocking Real-World Value​

The feature set enabled through OIDC support in Entra External ID addresses a variety of real-world scenarios. Here are notable use cases:

1. External Partner Collaboration and B2B Access​

Organizations can now more easily collaborate with external business partners—vendors, contractors, supply-chain networks—by permitting access to applications through their existing credentials. For instance, a major retailer can allow vendor employees to access its ordering portal using their company’s Okta-managed identity without manually handling onboarding or creating shadow accounts.

2. Customer Identity and Access Management (CIAM)​

Modern customer-facing applications demand intuitive onboarding and SSO. By utilizing OIDC, businesses can allow end users to sign up and authenticate with social or established accounts—reducing abandonment and driving higher conversion rates. Online retailers, government services, and energy providers are examples where personalized, secure, and easy login translates directly into business value.

3. Federated Authentication with Government and Citizen Identity Programs​

Entra External ID’s support for OIDC also facilitates secure access using national or state-backed identity providers (provided these adhere to OpenID Connect standards). This is a crucial differentiator for the public sector, where citizen authentication and confidentiality are paramount.

4. Legacy Azure AD B2C and Migration​

Microsoft reassures customers invested in Azure AD B2C that Entra External ID’s new capabilities can seamlessly integrate or even help migrate existing CIAM infrastructure. This maintains backward compatibility while unlocking richer features for future use.

5. Employee Discount and Partner Perks Programs​

Federated logins make it easier to manage access for partner employee programs, such as retail discounts for employees of a business’s partners. The result: streamlined, auditable access without risky manual processes or additional overhead.

Technical Anatomy: OIDC Federation in Practice​

At a technical level, OIDC support in Entra External ID works by leveraging the OAuth 2.0 authorization code flow in combination with standardized endpoints—for authentication and token issuance—prescribed by the OpenID Connect specification. When configured, Entra External ID acts as a “relying party,” trusting assertions from external identity providers that support OIDC.
This technical alignment means that onboarding a new OIDC-compliant provider typically involves minimal configuration: providing issuer URLs, client credentials, and defining claim mappings for user attributes. In turn, Entra External ID can provision users, assign access rights, or enforce security policies—such as multi-factor authentication (MFA)—based on these federated identities.

Strengths: Security, Scalability, and User Experience​

Security and Reduced Attack Surface​

By federating authentication, organizations reduce the proliferation of passwords—often cited as the weakest link in cybersecurity. When users leverage accounts already secured by an identity provider with proven controls (MFA, risk-based access, compliance monitoring), the risk of password reuse, phishing, and credential stuffing attacks diminishes.
Moreover, with Entra External ID, organizations can apply conditional access policies, session management, and monitoring to all external or federated users—ensuring consistent enforcement of organizational standards, regardless of where the identity originates.

Scalability and Operational Velocity​

Federation means external users can be onboarded at scale. There’s no longer a need for manual account creation, identity validation, or time-consuming offboarding. For organizations dealing with thousands of partners, customers, or program members, this self-service—and standards-driven—approach yields considerable operational efficiencies.

Enhanced User Experience​

Perhaps the most visible benefit is for end users who can now sign in using familiar credentials. Convenience drives adoption: reduced friction equates to greater participation and less dropout, especially in customer-facing portals or partner programs. Microsoft notes that such improvements "boost conversion rates and enhance user satisfaction," claims supported by industry studies showing significantly reduced onboarding times and improved retention where identity federation is deployed.

Important Limitations and Roadmap​

Despite its advantages, there are key limitations to be aware of in this initial phase:

• Support Scope as of June 2024: OIDC federation in Entra External ID currently supports only non-Entra tenants. This includes Azure AD B2C, personal Microsoft accounts, and any cloud identity provider conforming to the OpenID Connect protocol.
• No Support Yet for Entra-to-Entra Federation: Organizations hoping to federate authentication from other Entra tenants (i.e., business partners using Microsoft Entra ID) must wait for a future update. Microsoft publicly states that expanding to allow Entra tenants as external identity providers is on the roadmap, but no definitive timeline is provided. Customers requiring Entra-to-Entra federation should monitor official Microsoft channels for updates.
• Potential Complexity in Claim Mapping: Larger or more complex organizations may still need to invest in careful claim transformations or attribute mappings between external identity providers and internal apps, especially where schemas differ or there are custom user profile needs.
• Dependency on External Provider Security: Trusting assertions from an external identity provider places the onus of identity proofing and protection partly on external parties. Organizations should vet providers for compliance with industry standards and ongoing security practices.

Comparative Analysis: How Does Microsoft Stack Up?​

Compared against competing solutions from Okta, Auth0 (now part of Okta), and Google Identity, Microsoft Entra External ID’s OIDC support brings it in line with current best practices. These vendors have long offered robust identity federation and social login capabilities, but Microsoft’s solution offers unique synergies for organizations already invested in the Microsoft ecosystem:

• Deeper integration with Microsoft 365, Azure, and Dynamics 365—a core selling point for enterprises using the full Microsoft cloud stack.
• Unified policy enforcement through Microsoft’s Conditional Access, allowing streamlined management of compliance across both internal and external users.
• Integrated monitoring and analytics via Entra Insights and Microsoft’s broader security information and event management (SIEM) solutions.

However, competitors like Okta or Auth0 may still offer broader direct integrations with non-Microsoft ecosystems and faster onboarding for non-standard providers. Deciding between solutions ultimately depends on organizational priorities, tech stack, and external identity requirements.

Security and Compliance: Cautions and Best Practices​

The addition of OIDC support does not diminish the need for strong identity governance:

• Audit External Providers: Only connect with identity providers that maintain robust security (MFA, SSO, regular compliance audits). Leverage Entra’s analytics to monitor usage from federated accounts.
• Conditional Access Policies: Apply the same rigor to federated users as internal accounts. Set policies for risk-based access, device compliance, and session management.
• Regular Reviews: Periodically review the list of accepted external providers, claim mappings, and user activities for anomalies or outdated configurations.
• Incident Response: Ensure incident playbooks account for federated identities, especially where remediation depends on actions taken by the external provider.

These practices align with Microsoft’s own recommendations and with industry frameworks including NIST’s Digital Identity Guidelines and ISO/IEC 27001.

Future Developments and Community Perspective​

Microsoft’s incremental rollout suggests a thoughtful commitment to standards-based, secure, and scalable external identity federation. User feedback—as collected through preview programs and Microsoft community channels—generally reflects approval, focusing on the ease of configuration and improved user experience. Some users, however, have flagged the current lack of Entra-to-Entra federation as a notable gap for organizations operating complex B2B ecosystems.
It is reported that Microsoft actively solicits feedback, and their published roadmap indicates ongoing investment in extending federation capabilities—an encouraging sign for organizations weighing a long-term commitment to Entra External ID.

Conclusion: A Milestone in External Identity Federation—But Not the Final Destination​

Microsoft’s adoption of OpenID Connect federation in Entra External ID marks a significant step forward in external identity management. The move future-proofs organizations for an interconnected, cloud-first world where seamless partner and customer access is not just a feature—but a competitive necessity.
Key takeaways include:

• Rapid, standards-based onboarding and federation with a broad range of identity providers.
• Enhanced user experience through passwordless or single sign-on options, directly benefiting customer and partner satisfaction.
• Operational and security gains through unified policy enforcement, scalable onboarding, and reduced shadow IT.
• Remaining limitations around Entra-to-Entra federation, highlighting the need for ongoing attention and validation of provider configurations.

For organizations committed to modernizing identity management, Entra External ID’s OIDC support is a welcome, evolutionary milestone—offering notable strengths, cognizant of certain risks, and built with an eye toward continuous improvement. As with all identity solutions, the greatest value emerges when these tools are paired with rigorous governance, continuous monitoring, and a willingness to adapt as the digital landscape shifts.
In summary, while no single update is a panacea, the trajectory is clear: federated, standards-driven identity will define the next era of secure collaboration, and Microsoft is now well-positioned to be a leader in this critical domain.

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Source: Petri IT Knowledgebase Microsoft Entra Adds OpenID Connect Support for External Identity Providers