Azure AD External Identities Licensing Updates

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Initially when Microsoft released Azure Active Directory B2B, they made the decision to roll out a 1:5 ratio billing model. What this meant was for a paid Microsoft 365 license, organizations were aloud to invite up to 5 guest users within their organization and impose the same Azure AD functionalities available to their internal users on those guest users. If you used the free version of Azure AD, the 1:5 ratio billing model does not apply. As we work with many organizations that utilize Azure AD B2B, this is consistently a point of confusion for clients. We have worked with Microsoft to ensure we have complete clarity on their license guidelines to provide accurate guidance to ourclients. With the recent updates to the Microsoft 365 external identities billing model, we wanted to provide clarity as to what the changes are and the benefits of the new model. 

Microsoft has recently created a new billing model for Azure Active Directory external identities which includes Azure AD B2B and B2C tenants.  The new model creates a simpler way to manage billings for your external users.The idea behind the shift is to keep track of the external identities that are considered as unique monthly active users (MAU), simply put any unique entity that has had authentication activity on the premises will be billed. 

For steps on how to link your Azure AD tenant to a subscription please follow the steps set out by Microsoft themselves through this link:


Billing Breakdown: 

The tenant is linked to a subscription and if the guest user uses premium features to collaborate with the tenant, the tenant will be billed using the MAU-based billing model. If the guest uses premium features and the tenant is under a premium subscription and the guest is not one of the first 50,000 unique monthly active users, then the tenant does not get billed as this is part of the free offering that Microsoft has. The pricing tier assigned to guest users is based on the highest pricing tier assigned to your Azure AD tenant. If your highest pricing is Azure AD free, then you’ll be requested to upgrade to a premium pricing model when you try to use premium features for guest users. Below you will find a list of all the free features that are offered through Azure.


Free Features:

  • Single Sign-On (SSO)(Unlimited)
  • User Provisioning
  • Federated Authentication (ADFS or 3rd party IDP)
  • Device Registration 
  • Cloud Authentication (Pass-Through Authentication, Password Hash sync, Seamless SSO)
  • Azure AD connect sync (extended on-premises directories to Azure AD)
  • Self-Service Password Change for Cloud Users
  • Azure AD Join: desktop SSO & Administrator bit locker recovery
  • Password Protection (Global Banned Password)
  • Multi-Factor Authentication
  • Basic Security and Usage Reports

For more information for premium features and a breakdown of the tiers of membership please visit: 


Pricing Breakdown:

Free goes further (Free Tier): Your first 50,000 MAUs (Monthly Active Users) are free for both Premium P1 and Premium P2 features.

Flexible: Connect with customers and partners based on the usage and features you need; rather than the licenses you have.

Predictable: Pay only for what you use. Forecast with ease as your business and usage scales. Customers are not charged for a MAU’s subsequent authentications or for storing inactive users within that calendar month. 

Important note: The Premium P2 features include all the Premium P1 features along with market-leading identity Protection and Identity Governance Controls. For more information on the pricing details of the new model  please use the following link  

For More Information Feel Free to Visit Microsoft’s Own Document on this Topic: