Active Directory Types Explained: Roles and Benefits in Modern IT Infrastructure

• 10 December 2025
• Active Directory (AD)
• Written by George Dockrell

Active Directory (AD) is a crucial system for managing identities and access within an organization, but it can often be a source of confusion due to its different variations. At its core, Active Directory’s role is simple: it acts as a directory service that identifies and grants access to users and services, much like an electronic version of a phone book or directory.

There are multiple types of Active Directory systems that organizations can use, each catering to different needs. The most common are local Active Directory and Azure Active Directory (rebranded to Microsoft Entra ID), which serve distinct purposes but share a common goal of managing identities.

By acting as the authoritative system for verifying who can access what within an organization, Active Directory ensures that only authorized users or devices are granted access to specific resources, providing a secure, streamlined approach to identity and access management across both on-premises and cloud environments.

Benefits of Modernizing Active Directory Management

Modernizing Active Directory management offers several significant advantages for organizations. One of the primary benefits is the reduction in administrative overhead. By transitioning to SaaS-based services, many of the routine tasks and management responsibilities are shifted to Microsoft, allowing IT teams to focus on more strategic initiatives.

Another key advantage is the assurance of consistent updates and compliance. With cloud-based services, organizations no longer need to worry about manually applying patches or staying on top of evolving regulatory requirements. Microsoft handles these updates, ensuring that your AD environment remains up to date and compliant without adding extra operational burden.

Finally, modernizing Active Directory facilitates a smooth migration to a fully cloud-based infrastructure. While it supports cloud-first strategies, it also allows for hybrid scenarios, making it easier to maintain connections between on-premises and cloud environments during the transition. This approach ensures flexibility and continuity as organizations evolve their IT infrastructures.

Exploring the Different Types of Active Directory

Active Directory (AD) encompasses several solutions designed to meet the diverse needs of modern IT environments. Each type serves a distinct purpose, whether for local networks, cloud services, or hybrid setups, ensuring organizations can securely manage identities and access across different platforms.

Here’s an overview of the seven key types of Active Directory:

• Local Active Directory (AD): A traditional, on-premises solution providing centralized identity management for local networks.
• Active Directory Federation Services (ADFS): Facilitates Single Sign-On (SSO), enabling users to access multiple systems with one set of credentials.
• Microsoft Entra ID: Formerly Azure AD; it is a cloud-based identity solution, designed to support modern applications and secure access across cloud environments.
• Azure Active Directory Domain Services (AADDS): A hybrid service that combines the best of cloud and domain management, supporting domain-joined VMs and legacy applications.
• Microsoft Entra Application Proxy: Formerly Azure AD Application Proxy; it simplifies the secure publication of on-premises web apps, making them accessible externally without exposing the entire network.
• Microsoft Entra Connect: Formerly Azure AD Connect; it is a synchronization tool that bridges on-premises AD environments with Microsoft Entra ID.
• Microsoft Entra Provisioning Agent: Formerly Azure AD Connect Cloud Provisioning; it is a lightweight solution designed to synchronize user identities from on-premises Active Directory to Microsoft Entra ID, which focuses on cloud-only provisioning.

Bridging Traditional AD with Cloud and Hybrid Solutions

While Local Active Directory continues to serve as the foundation for on-premises identity management, Microsoft has evolved its identity ecosystem to meet the demands of modern IT environments. Under the Microsoft Entra brand, services like Microsoft Entra ID (formerly Azure AD), Microsoft Entra Connect (previously Azure AD Connect), and Microsoft Entra Application Proxy (formerly Azure AD Application Proxy) have been introduced to extend AD’s capabilities into cloud and hybrid setups.

These services play a vital role in modern identity and access management by enabling seamless integration between traditional on-premises AD and cloud environments. Many organizations use a combination of on-premises AD and Microsoft Entra ID to create a seamless hybrid identity environment. By bridging the gap, Entra services empower organizations to adopt hybrid strategies, enhance security, and manage identities efficiently across both local and cloud platforms.

The table below highlights the key differences between the different Active Directory and Entra ID services, providing a concise overview for those looking for a quick comparison without delving into the detailed descriptions and analyses of each.

Feature / Service	Local Active Directory (AD)	AD Federation Services (AD FS)	Microsoft Entra ID	Azure AD Domain Services (AADDS)	Microsoft Entra Application Proxy	Microsoft Entra Connect	Microsoft Entra Provisioning Agent
Purpose	On-premises identity management	SSO for internal & external systems	Cloud-based identity management	Managed AD for cloud & hybrid use	Publishes on-prem apps externally	Hybrid identity integration	Synchronization between on-prem & cloud
Deployment	On-prem, Windows Server	On-prem, extra infrastructure	Cloud, integrates with Microsoft 365	Cloud, NTLM & Kerberos support	Requires Azure AD & firewall config	On-prem, integrates with Entra ID	Cloud-managed for hybrid environments
Supports Hybrid	❌	✅	✅	✅	❌	✅	✅
SSO Support	❌	✅	✅	❌	✅	✅	✅
Physical Infrastructure Required	✅	✅	❌	❌	❌	❌	❌
Cloud-Based	❌	❌	✅	✅	✅	✅	✅
Third-Party Apps Support	❌	✅	✅	❌	✅	✅	✅
Dev Authentication	❌	✅	✅	❌	✅	✅	✅
Simplified Account Management	❌	✅	✅	❌	✅	✅	✅
Backup & High Availability	❌	❌	✅	✅	❌	✅	✅
Limitations	✅	✅	❌	✅	✅	✅	✅
VPN/DNS Needed	✅	✅	❌	❌	✅	✅	✅

Local Active Directory

Local Active Directory represents the traditional, on-premises identity management system integral to Windows Server environments. It offers businesses a centralized platform to manage access across users, devices, servers, and applications, all using a single set of credentials.

Local AD serves as the backbone for identity management within local environments, allowing businesses to maintain a streamlined authentication process for both employees and devices. This centralized approach simplifies user management by requiring just one username and password for access to various resources. Typically hosted on Windows Server OS, Local AD runs on domain controllers that store and manage directory data. It requires an on-premises infrastructure to function, relying on the physical management of servers and a direct network connection.

Despite its reliability, Local AD comes with certain challenges. Its reliance on DNS, VPNs, and server management can create bottlenecks. Additionally, as businesses evolve, maintaining outdated hierarchical structures and managing complex infrastructures can become increasingly cumbersome. The need for physical hardware and network connections further limits flexibility, particularly in the era of hybrid and remote work environments.

Active Directory Federation Services (AD FS)

Active Directory Federation Services (AD FS) enhances single sign-on by enabling seamless authentication across both internal and external systems. It shares identity and access rights, referred to as claims, to authorize access to federated applications beyond the corporate firewall.

AD FS simplifies authentication, enabling users to access both on-premises and external applications with a single set of credentials. It streamlines password management, reduces credential complexity, and facilitates secure guest account provisioning for external access. By offering a unified sign-on experience across both on-premises and cloud applications, AD FS also simplifies integration for developers. However, it requires additional infrastructure, which can increase setup costs and introduce potential points of failure that need careful management.

Microsoft Entra ID

Microsoft Entra ID, formerly known as Azure Active Directory, is a cloud-based service designed to provide centralized management for cloud applications, addressing modern security needs and supporting hybrid environments with the help of Microsoft Entra Connect. Its integration with Microsoft 365 enables a seamless experience for users and administrators.

While Entra ID serves a critical role in securing access to SaaS applications, its advanced capabilities, such as enhanced security features and device management, require higher-tier licenses. Though distinct from traditional on-premises Active Directory, Entra ID can sync with local Active Directory, allowing for hybrid configurations and ensuring a unified experience across both environments.

Azure Active Directory Domain Services (AADDS)

Azure Active Directory Domain Services (AADDS) offers a managed solution that simplifies the use of Active Directory for lift-and-shift scenarios. It provides a SaaS-like experience, enabling organizations to use AD without maintaining the traditional on-premises infrastructure.

This fully cloud-hosted service supports essential authentication protocols like NT LAN Manager (NTLM) and Kerberos, with features such as automatic backups and high availability to ensure reliability. AADDS is particularly useful for applications that require AD but do not need the complexity of managing a full AD environment.

However, AADDS comes with limitations, including flat organizational units (leading to limited management flexibility), making it less suitable for workstation management, and restricted administrative capabilities. The service is best suited for web-based applications hosted in Windows Server environments that require AD functionality but want to avoid the overhead of maintaining local servers.

Microsoft Entra Application Proxy

Microsoft Entra Application Proxy enables organizations to securely publish on-premises web applications for external access, while maintaining robust security measures. It supports Single Sign-On to streamline user access and integrates with Multifactor Authentication (MFA) to enhance security.

Deployment requires an Azure AD Basic or Premium subscription and specific firewall configurations to ensure seamless integration with existing networks and applications. However, Microsoft Entra Application Proxy comes with certain limitations. It is compatible only with specific Windows versions and requires outbound traffic permissions, which may add complexity to network configurations. Despite these restrictions, the service provides a secure bridge between on-premises applications and external users, simplifying remote access while maintaining strong security standards.

Microsoft Entra Connect

Microsoft Entra Connect is an on-premises application that integrates on-premises AD with Microsoft Entra ID, enabling users to access both on-premises and cloud resources with a unified identity. Deployed locally, Entra Connect supports synchronization methods like password hash synchronization, pass-through authentication, and federation integration, offering flexibility for hybrid identity needs. It also includes health monitoring through Microsoft Entra Connect Health, providing insights into the performance and reliability of identity infrastructure.
While Entra Connect streamlines hybrid identity management, its reliance on on-premises infrastructure makes it less ideal for cloud-only environments. Organizations seeking a modernized solution may consider Microsoft Entra Cloud Sync, a cloud-managed alternative.

Key benefits include seamless identity integration, centralized management, and enhanced productivity. As Azure AD Connect V1 is retired, transitioning to Microsoft Entra Connect V2 or Cloud Sync ensures continued support and compatibility.

Microsoft Entra Provisioning Agent

The Microsoft Entra Provisioning Agent is a cloud-managed tool designed to enable seamless synchronization between on-premises environments and Microsoft Entra ID. It primarily supports cloud sync and on-premises app provisioning, offering a flexible approach to identity and access management.

This agent leverages SCIM 2.0 (System for Cross-domain Identity Management), a widely adopted standard that simplifies user provisioning and synchronization. When combined with federated protocols like SAML or OpenID Connect, SCIM enables a standards-based, end-to-end solution for secure identity management across both cloud and on-premises platforms. The Entra Provisioning Agent is cloud-based, meaning it is managed remotely, simplifying deployment and ongoing management.

However, its primary limitation lies in the dependency on cloud synchronization, which may not be suitable for environments that require local-only solutions or are not yet fully cloud-integrated. Overall, the agent streamlines hybrid environments, enhancing efficiency in managing identities across cloud and on-premises systems, making it a valuable tool for organizations transitioning to modern identity solutions.

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