Identity is the quiet foundation of everything else in your IT environment. It decides who can sign in, what they can reach, and how cleanly you can grow, merge, or lock things down. So when a business starts moving to the cloud, one question comes up again and again: do we still need Active Directory, or does Entra ID replace it? The honest answer for most growing companies is that they are not competitors — they are two layers that often run side by side.
They share a name, not a job
Active Directory Domain Services (AD DS) is the on-premises directory that has run business networks for over two decades. It is built around domains, organisational units, and Group Policy, and it speaks protocols like Kerberos and LDAP. It is exceptional at managing domain-joined Windows machines, file shares, printers, and the traditional applications that expect a classic corporate network.
Microsoft Entra ID (formerly Azure AD) is a cloud identity service. It is not a hosted copy of Active Directory — it is a different model built for the modern world of web and SaaS applications. It speaks SAML, OAuth, and OpenID Connect, and it is designed around single sign-on to cloud apps, multi-factor authentication, and conditional access policies that make decisions based on user, device, location, and risk.
The distinction that trips people up
Because the names are similar, teams assume Entra ID is "AD in the cloud" and can simply switch. It cannot, not directly. Entra ID has no concept of Group Policy or an OU tree, and it does not natively domain-join a traditional Windows Server the way AD DS does. Conversely, Active Directory has no native handle on your SaaS logins. Each is excellent at what the other is weak at.
Three models, and how to tell which is yours
1. On-premises Active Directory only
If nearly everything your staff use is installed locally — file servers, a line-of-business app that expects domain authentication, on-site machines — classic AD still does its job well. This is increasingly rare as a complete picture, but common as a starting point. The risk is that it leaves your cloud logins (Microsoft 365, other SaaS) managed separately, which means two sets of accounts and two places to forget to disable someone.
2. Cloud-only with Entra ID
If you have no on-premises servers to speak of, your staff work from laptops, and your applications are all SaaS, a cloud-only Entra ID model is clean and modern. Devices join Entra directly, single sign-on covers your apps, and conditional access enforces security centrally. Newer businesses and fully remote teams often land here naturally, with no legacy directory to carry.
3. Hybrid identity — the common middle
Most established businesses of 10 to 200 people sit in the middle: some on-premises systems that still need Active Directory, plus a growing set of cloud apps that belong in Entra ID. Hybrid identity connects the two so that one account works everywhere. This is the model that needs the most care to set up well — and the one that causes the most pain when it is set up badly.
How hybrid actually works
The bridge is a synchronisation tool (Entra Connect) that copies identities from your on-premises Active Directory up to Entra ID. Users keep one username and password; changes flow from your local directory to the cloud. On top of that you layer the security controls that make cloud identity worthwhile:
- Single sign-on so staff authenticate once and reach both local and cloud resources
- Multi-factor authentication enforced centrally, ideally for every user
- Conditional access that adapts to device health, location, and sign-in risk
- A single, reliable joiner-mover-leaver process so disabling one account removes all access
That last point is the quiet payoff. In a well-built hybrid environment, offboarding someone is one action, not a scavenger hunt across disconnected systems. In a poorly built one, a departed employee can keep a live SaaS login for months because it was never tied back to the directory.
Choosing well: the questions that matter
- 1.What do your applications require? Domain-joined legacy apps pull you toward keeping AD; an all-SaaS stack pulls you toward cloud-only.
- 2.Where do your people work? Fully remote teams benefit from a cloud-first model; a mix of office desktops and field laptops usually means hybrid.
- 3.How do you handle joiners and leavers today? If access lingers after someone leaves, that is an identity-architecture problem worth fixing before it becomes a security incident.
- 4.What is your direction of travel? Even if you stay hybrid for now, design so you can move cloud-first later without re-doing everything.
Key takeaways
- Active Directory and Entra ID are different models, not old and new versions of the same thing.
- AD DS excels at on-premises Windows, file shares, and legacy apps; Entra ID excels at cloud SSO, MFA, and conditional access.
- Most growing businesses are hybrid, and the value is in wiring the two together cleanly — one account, one offboarding action.
- Design toward cloud-first even if you are not there yet, so today's choice does not box you in tomorrow.
Getting hybrid identity right is detailed work — synchronisation, conditional access, and a clean leaver process rarely go smoothly by accident. Our IT infrastructure services cover Active Directory and Entra ID as a core specialty, including hybrid setups designed to keep sign-in seamless today and give you a clean path to cloud-first when you are ready.