Identity is key when planning and implementing a Microsoft 365 environment. While the default identity method within Microsoft 365 is cloud-only, many organizations with reliance on legacy on-premises infrastructure and applications need to plan the deployment of hybrid identities when introducing Microsoft 365 to their organization.

So, what is a hybrid identity? In simple terms, it is the process of providing your users with an identity in the cloud that is based on their on-premises identity. There are several ways in which this can be achieved and they will be explained in detail throughout this chapter.

The basic principles of hybrid identity in Microsoft 365 are shown in the following diagram:

Figure 1.1: Hybrid identity

We will now explain how you can start planning for hybrid identities in Microsoft 365.

You should start by establishing the correct identity type for the business needs of your organization. It is important, at this stage, to recognize who your stakeholders will be in this process, understand their current working tools and practices, and assess how Microsoft 365 could be used best enabling them to work more efficiently and securely.

The following are some examples of your possible stakeholders:

• Users
• Power users
• IT team
• Security team
• Compliance team
• Business owners

Each stakeholder will have their challenges that need to be considered. However, your users account for the highest percentage of your stakeholders. Therefore, your primary focus should be to ensure that the transition to new ways of working is seamless. This is because many users will be nervous about change. How you introduce them to new technologies and working practices is directly related to the success or failure of your project. If your users buy into the changes you are introducing and can realize the benefits, then the rest of your stakeholders are also more likely to follow suit.

While your main users will be focused on doing their job, the remaining stakeholders will have a deeper interest in how a Microsoft 365 hybrid environment meets business requirements. Some of the common business requirements are as follows:

• The modernization of existing IT services and tools
• Providing and securing cloud Software as a Service (SaaS) applications
• Reducing risk by establishing a modern identity-based security perimeter

For addressing these requirements, a logical starting point is to examine how on-premises identities are currently configured. This will give you a better understanding of what you need to plan and implement for identity authentication in the cloud. You need to be aware of any current on-premises synchronization solutions that may be in place, including any third-party solutions. You will also need to consider any existing use of cloud applications in the organization. These will need to be identified and plans made for their continued use, integration, or possible replacement.

Note

Cloud App Discovery using Microsoft Defender for Cloud Apps can be used to analyze existing SaaS app usage within your organization. This will be covered in a later chapter of this book.

Understanding your on-premises identity infrastructure will help you to plan for modernization or digital transformation. So, what is modernization considered to be in the world of information technology? Essentially, it is based on the principle that IT users now wish and expect to be more mobile. They want quick and easy access to their emails, chats, and documents anywhere, anytime, and on any device.

This requirement creates the challenge of how to effectively secure and protect the services within the Microsoft 365 platform while simultaneously ensuring that they are easily available and accessible to users. How is this achieved? It is not possible to wrap a firewall around Microsoft 365 in the traditional sense. Instead, you need to look at the various modern authentication security methods that are available within Azure AD. Let’s discuss these methods in detail in the next section.

Several approaches can be leveraged to authenticate your users to Azure AD. In this section, you will explore these methods and understand their use cases.

The authentication security methods available in Microsoft 365 are as follows:

• Multi-factor authentication (MFA)
• Self-service password reset (SSPR)
• Conditional Access
• Passwordless

The following sections will briefly introduce the principles of these methods; however, each of these will be explored in greater detail in Chapter 2, Authentication and Security, and Chapter 3, Implementing Conditional Access Policies.

Multi-factor authentication

MFA in Azure AD provides two-step verification for Microsoft services via a combination of approved authentication methods determined by Microsoft 365 administrators. The available methods can be based on the following:

• Something you know, such as your password
• Something you own, such as your mobile phone or an OAuth hardware token
• Something you are, such as biometric identification (fingerprint or facial recognition)

When setting up MFA for users in your Microsoft 365 environment, users must first complete a registration process to provide information about themselves to Azure AD and set their authentication method preferences.

Once set, users will be challenged with an MFA prompt when accessing Microsoft 365 services and applications using their Azure AD credentials, as shown in the following diagram:

Figure 1.2: Azure MFA

MFA can also be configured to work in conjunction with Conditional Access, with trusted locations that you define by entering the IP ranges of your business operating units so that users will not be issued an MFA challenge when working in these locations. Conditional Access with MFA also enables you to apply another layer of security by ensuring that any access requests to specific apps and resources can be secured and protected, by requiring the requesting user to complete an MFA challenge before being granted the access they require.

Note

It is recommended that you configure MFA for all privileged user accounts within your Microsoft 365 environment, except for your permanent break-glass accounts, which should be cloud-only accounts with the domain suffix of the .onmicrosoft.com domain name. Alternative authentication protection should be applied to these break-glass accounts. Break-glass accounts will be covered in more detail in Chapter 3, Implementing Conditional Access Policies.

Self-service password reset

Whilst not strictly an authentication method in itself, SSPR is a user feature designed to remove the requirement of IT staff to respond to user requests to reset their passwords in Azure AD. An initial registration process is required at https://aka.ms/SSPRSetup for each user to set up SSPR, during which time they must provide authentication methods to verify their identity.

Note

To reset the password, the user visits https://passwordreset.microsoftonline.com.

SSPR can be used for both cloud-only and hybrid identity users. If the user is cloud-only, then their password is always stored encrypted in Azure AD, whereas hybrid users have their password written back to on-premises AD. This is achieved using a feature that can be enabled in Azure AD Connect called password writeback.

The basic principles of SSPR are illustrated in the following diagram:

Figure 1.3: Self-service password reset

The process of registering your users for SSPR is now combined with that of the MFA registration process. Previously, there were two separate registration processes for these technologies.

When SSPR is enabled on your Azure AD environment, you can assist your users by configuring notifications that make them aware when their passwords have been reset. You can also increase security by setting administrator notifications to monitor and alert whenever an administrator changes a password. It is also possible to customize a helpdesk email or URL to provide immediate guidance to users who experience problems when attempting to reset their passwords.

Note

When using SSPR with password writeback for your hybrid identities, you will require Azure AD Premium P1 licenses.

Conditional Access

Conditional Access is a powerful feature of Azure AD Premium P1 that allows Microsoft 365 administrators to control access to applications and resources within your organization. With Conditional Access, you can automate the process of controlling the level of access that users will have to these applications and resources by setting Conditional Access policies. Azure AD will then make decisions on whether to grant or deny access based on the conditions that you set in these policies. The basic principles are shown in the following diagram:

Figure 1.4: Conditional Access

While it is possible to apply some default security settings to your Microsoft 365 environment with security defaults (auto-applied on newer tenants), you will undoubtedly need to plan and define custom policies with specific conditions and exceptions. For example, you would not wish to force MFA on your permanent break-glass global administrator account. We will examine Conditional Access in greater detail in Chapter 3, Implementing Conditional Access Policies.

Note

Conditional Access settings frequently require some additional features of Azure AD to be configured, for example, Azure AD Identity Protection. This will have an impact on your decision-making process as it relates to licensing. While Conditional Access is a feature of Azure AD Premium P1, the use of Azure AD Identity Protection features would necessitate Azure AD Premium P2 licenses.

Passwordless authentication

Passwords are more vulnerable than ever before and can be exploited and compromised by malicious actors using techniques such as phishing, spray attacks, and social engineering attacks. Switching to a passwordless authentication method helps mitigate such risks.

Microsoft provides three types of passwordless authentication for Azure AD. These are as follows:

• Microsoft Authenticator: Can enable iOS or Android phones to be used as passwordless credentials by providing numerical challenges.
• FIDO2-compliant security keys: Hardware keys provided by a number of third-party manufacturers; ideal for highly privileged identities or shared machines in kiosks.
• Windows Hello for Business: Available on Windows computers and ideal for users with their own designated Windows device. Biometric and PIN credentials are directly configured on the device to prevent access from anyone but the authorized user.

Note

Links to further resources on Microsoft Authenticator, FIDO2-compliant security keys, and Windows Hello for Business can be found in the Further reading section at the end of this chapter.

Now that you understand the available authentication methods, let’s explore the directory synchronization methods supported by Azure AD Connect.

Having covered the concept of hybrid identity and authentication, you will now go through the process that makes hybrid identity possible—directory synchronization. The tool used to configure directory synchronization is called Azure AD Connect (previously known as Azure AD Sync Service and DirSync). Azure AD Connect consists of, or can leverage, the following components:

• Synchronization services
• Active Directory Federation Services (AD FS)—an optional component
• Health monitoring

Azure AD Connect supports multiple AD forests and multiple Exchange organizations to a single Microsoft 365 tenant. It leverages a one-way process, where it synchronizes users, groups, and contact objects from your on-premises AD to Microsoft 365.

Although this is almost exclusively a one-way process, there are some writeback capabilities that can be leveraged if chosen or required, which will allow attributes from passwords and groups set in Microsoft 365 to be written back to an on-premises AD.

The principles of Azure AD Connect are shown in the following diagram:

Figure 1.5: Azure AD Connect

Once Azure AD Connect is configured and in place, the source of authority for these newly synchronized objects remains with the on-premises AD. Therefore, these objects must be managed by on-premises tools, such as AD Users and Computers or PowerShell. Microsoft 365 administrators will, therefore, not be able to make changes to cloud objects in the Microsoft 365 portal that are synchronized from the on-premises AD.

When setting up Azure AD Connect for the first time, the installation wizard will guide you to select either an Express Settings installation or a customized settings installation. The Express Settings installation is the default setting for Azure AD Connect and is designed for use with password hash synchronization from a single AD forest. The installation dialog is shown in the following screenshot:

Figure 1.6: Express settings

The custom settings installation provides a richer selection of optional features that can be configured to provide enhanced functionality if required. You can start a custom settings installation by clicking on Customize:

Figure 1.7: Custom settings

With the custom settings installation, you are provided with the following options to extend your on-premises identities in the cloud using Azure AD Connect:

• Password hash synchronization
• Pass-through authentication
• Federation with AD FS
• Federation with PingFederate
• Enable single sign-on
• Do not configure

The following sections will explain how to configure the first five of these options in detail.

Password hash synchronization

Password hash synchronization is the simplest method to establish a hybrid identity with Azure AD. Also commonly known as same sign-on, password hash synchronization can be set up using Azure AD Connect. This will synchronize a hash of the user passwords to Azure AD from your on-premises AD.

With password hash synchronization, users logging onto their cloud accounts via the Microsoft 365 portal will authenticate directly to Microsoft 365 cloud services as opposed to leveraging on-premises authentication and security:

Figure 1.8: Password hash synchronization

How does this work? Here is the process in a few simple steps:

1. The password synchronization agent within Azure AD Connect will request the stored password hashes at 2-minute intervals from a domain controller. In response to this, the domain controller will encrypt the hash. This encryption is executed with a key that is acquired from the Remote Procedure Call (RPC) session key and then salted. Salting is a process pertaining to password hashing. Essentially it involves adding a unique value to the end of the password to create a different hash value. This provides an additional layer of security and helps protect against brute-force attacks.
2. The domain controller will then send the result, along with the salt, to the sync agent using RPC. The agent can now decrypt the envelope. It is important to point out that the sync agent never has any access to the password in cleartext.
3. Once decrypted, the sync agent performs a re-hash on the original password hash, changing it to a SHA256 hash by imputing this into the PKDF2 function.
4. The agent will then sync the resulting SHA256-hashed password hash from Azure AD Connect to Azure AD using SSL.
5. When Azure AD receives the hash, it will be encrypted with an AES algorithm and then stored in the Azure AD database.

Therefore, when a user signs into Azure AD with their on-premises AD username and password, the password is taken through this process. If the hash result is a match for the hash stored in Azure AD, the user will be successfully authenticated.

Pass-through authentication

Pass-through authentication is an alternative to password hash synchronization. This method is commonly used when Microsoft 365 administrators require users to authenticate their Microsoft 365 logins on-premises as opposed to directly to Azure AD:

Figure 1.9: Pass-through authentication

Unlike password hash synchronization, pass-through authentication does not synchronize passwords from on-premises AD to Microsoft 365. Instead, it allows users to log on to both on-premises and cloud applications and services using the same password. This provides a far more cohesive experience for users, with the added benefit that on-premises passwords are never stored in the cloud in any form.

A lightweight agent is all that is needed to set this up with Azure AD Connect and this agent is automatically installed on the Azure AD Connect server when you run the initial setup for pass-through authentication. To provide resiliency to your pass-through authentication solution, the agent can be installed onto additional servers in your on-premises AD sites. The agents should ideally be installed on servers close to your domain controllers to improve sign-in latency. Servers on which the agent is installed should also be security hardened to the same extent that you would protect domain controllers.

Note

It is recommended to configure a minimum of three authentication agents in your environment. The maximum number of agents that can be installed is 40. It is generally good practice to have at least one agent deployed to each of your AD sites to make pass-through authentication resilient and highly available.

The authentication agents must be able to make outbound requests to Azure AD over the following ports in order to function:

Table 1.1: Azure AD ports

Federation

Federation, in simple terms, can be described as domains that trust each other. They share access to resources across organizations, with authentication and authorization settings configured to control the trust.

It is possible to federate your on-premises AD environment with Azure AD to provide authentication and authorization. As is the case with pass-through authentication, a federated sign-in method enforces all user authentication via on-premises methods as opposed to the cloud.

The main benefits of federation are that it provides enhanced access controls to administrators. However, the drawback of this method is that additional infrastructure will inevitably need to be provisioned and maintained.

In Azure AD Connect, there are two methods available to configure federation with Azure AD. These are AD FS and the more recently added PingFederate.

To explain the infrastructure requirements in more detail, AD FS can be used as an example. In order to configure AD FS in line with Microsoft’s best practices, you will need to install and configure a minimum of two on-premises AD FS servers on your AD environment and two web application proxy servers on your perimeter network.

This configuration provides the necessary security principles to ensure that both internal and (especially) remote users authenticate to the services within your hybrid environment in a manner that provides appropriate authentication and authorization. The process of federation is shown in the following diagram:

Figure 1.10: Federation

So, how does federation actually work? Well, there are two main principles that you need to understand. These are claims-based authentication and federated trusts. The following sections will explain each of these in detail.

Claims-based authentication

Claims-based authentication works on the principle of users making statements about themselves in order to authenticate and gain access to applications by using industry-standard security protocols. User claims rely on the claims issuer, which is the Security Token Service (STS). The STS can be configured on your AD FS server. The statements provided by users can relate to name, identity, key, group, privilege, or capability.

A claim is issued by the user to the claims issuer. It is then assigned values and packaged into a security token by the claims issuer (the STS). This security token is essentially an envelope that contains the claims relating to the user. The token is sent back to the user and then passed to the application that the user wishes to access.

The claim relies on the explicit trust that is established with the issuer. The application that the user wishes to access will only trust the user’s claim if it subsequently trusts the claims issuer (the STS).

With claims-based authentication, you can configure a number of authentication methods. The most commonly used ones are as follows:

• Kerberos authentication
• Forms authentication
• X.509 certificates
• Smart cards

Although many older applications do not support claims-based authentication, the main use-case argument for applications that do support it is that it simplifies the process of trust for those target applications. Instead of having to place their trust directly in the user making the claim, they can be secure in the knowledge that they can absolutely trust the claims issuer instead.

Federated trust

Federated trusts expand on the capabilities of claims-based authentication by enabling your issuer to accept security tokens from other issuers as opposed to a user having to directly authenticate. In this scenario, the issuer can both issue and accept security tokens from other trusted issuers utilizing the federation trust. This process essentially establishes a business relationship or partnership between two organizations.

Federated trusts enable trusted issuers to represent the users on their side of the trust. The benefit of this configuration is that should you need to revoke the trust, you can do so through a single action. Rather than revoking a trust with many individual external users, you can simply terminate the trust with the issuer.

A good example of how this works in practice would be that if you need to authenticate remote users to your environment, a federated trust will remove the requirement to provide direct authentication for those users. Instead, you will have a trust relationship with the remote user from their organization. This enables these remote users to continue using their own single sign-on methodology and provides an efficient, decentralized way for them to authenticate to your organization.

Note

An alternative method of providing many of the features that federation offers is to use pass-through authentication in conjunction with the rich features of Azure AD Premium, such as Conditional Access and Identity Protection.

Although additional licensing may be required within Azure AD to deploy these features, this method offers simplified setup and administration and also removes the requirement for any additional infrastructure.

Azure AD Seamless Single Sign-On

Azure AD Seamless Single Sign-On (Azure AD Seamless SSO) is a free-to-use feature of Azure AD that provides a single set of credentials for your users to authenticate to applications within Azure AD, when connecting to your organization’s network using a business desktop device. This means that once connected to your organization’s network on their Windows 10/11 domain-joined devices, they will not be asked to provide further credentials when opening any Azure AD applications. The principles of Seamless SSO are shown in the following diagram:

Figure 1.11: Seamless SSO

Seamless SSO is configured via the Azure AD Connect wizard or PowerShell and can be used in conjunction with password hash synchronization and pass-through authentication. It is not compatible with federations such as AD FS or PingFederate.

There are some prerequisites to be aware of when planning to implement Seamless SSO. These include the following:

• If you are using Azure AD Connect with password hash sync, ensure that you are using Azure AD Connect Version 1.1.644.0 or later. Further, if possible, ensure that your firewall or proxy is set to allow connections to the *.msappproxy.net URLs over port 443. Alternatively, allow access to the Azure data center IP ranges.
• Be aware of the supported topologies that are shown at https://docs.microsoft.com/en-us/azure/active-directory/hybrid/plan-connect-topologies.
• Ensure that modern authentication is enabled on your tenant.
• Ensure that the version of your users’ Office desktop clients is a minimum of 16.0.8730.xxxx or above.

Note

Although at the time of writing this book, version 1.1.644.0 is still listed as the minimum required version of Azure AD Connect when using Seamless SSO with password hash synchronization, it is important to be aware that version 1 of AD Connect was retired by Microsoft at the end of August 2022. Further details of this can be found in the Further reading section at the end of the chapter.

Once you have verified these prerequisites, you can go ahead and enable the feature. This is most commonly done when setting up Azure AD Connect for the first time by performing a custom installation using the Azure AD Connect wizard and, from the User sign-in page, ensuring that the Enable single sign-on option is selected:

Figure 1.12: User sign-in methods

It is also possible to use PowerShell to set up Seamless SSO. This is a particularly useful method if you need to specify a particular domain(s) in your AD forest to use the feature.

If you need to enable the feature when you already have Azure AD Connect deployed, then you can rerun the setup wizard and choose the Change user sign-in option under the Additional tasks section:

Figure 1.13: Additional tasks

Note

You will need domain administrator credentials to complete setting up Seamless SSO. However, these credentials are only required to enable the feature and will not be required after the setup is complete.

To verify that the setup of Seamless SSO has been completed successfully, log on as a global administrator to https://portal.azure.com and navigate to Azure Active Directory | Azure AD Connect.

From this page, you will be able to verify that Seamless SSO has the status Enabled:

Figure 1.14: User sign-in settings

Finally, when completing your custom settings installation of Azure AD Connect, you are presented with several additional Optional features, as shown in the following screenshot:

Figure 1.15: Optional features

The most commonly used features are Exchange hybrid deployment and Password writeback. Further information on all of the available optional features can be viewed at https://docs.microsoft.com/en-us/azure/active-directory/hybrid/how-to-connect-install-custom#optional-features.

To deploy the Azure AD Seamless single sign-on feature for your users, you need to ensure that the following URL is added to the required user’s Intranet Zone settings by using Group Policy: https://autologon.microsoftazuread-sso.com.

One of the advantages of deploying this setting with Group Policy is that you can roll out Seamless SSO to groups of users at your own pace.

A more recent alternative to Azure AD Connect to accomplish hybrid identity goals is Azure AD Connect cloud sync, which we will discuss in the next section.