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Managed IT · Identity

Cloud identity, server identity, or both

How Microsoft Entra ID differs from on-premises Active Directory, what a hybrid setup involves and how to tell whether your office still needs a domain controller.

What each directory does

How hybrid sync works

When the server can go

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The short answer

Active Directory (AD DS) is Microsoft’s on-premises directory. It runs on Windows Server domain controllers in your office and handles sign-in to domain-joined PCs, file shares, printers and Group Policy using protocols like Kerberos and LDAP. Microsoft Entra ID, formerly Azure Active Directory, is Microsoft’s cloud identity service. It handles sign-in to Microsoft 365 and other cloud apps using web protocols such as SAML, OpenID Connect and OAuth, and adds multi-factor authentication and Conditional Access.

Microsoft describes Entra ID as an identity-as-a-service solution for apps across cloud and on-premises. Every Microsoft 365 tenant already has Entra ID. Many small businesses run both and sync them. If your apps are in the cloud and you no longer depend on on-premises file servers or legacy software, you can often retire the domain controller and manage devices with Entra join and Intune instead.

Side by side

Where it runs

AD DS: Windows Server domain controllers you host and patch. Entra ID: a Microsoft cloud service, nothing to host.

What it signs you into

AD DS: domain-joined PCs, file shares, printers, on-premises apps. Entra ID: Microsoft 365, SaaS apps and Entra-joined devices.

How devices are managed

AD DS: Group Policy over the office network. Entra ID: Intune or another MDM, over the internet from anywhere.

Security features

AD DS: password policies and Group Policy. Entra ID: MFA, Conditional Access, sign-in risk and self-service password reset, depending on license.

Neither is a drop-in copy of the other. Entra ID has no Group Policy or organizational units in the AD sense, and it does not replace LDAP for older applications.

Licensing matters too. A basic level of Entra ID comes with Microsoft 365 business subscriptions, but features such as Conditional Access require Entra ID P1, which is included in some plans and sold separately for others. Check what your current licenses include before you plan a migration.

The three common setups

1. On-premises AD only

Typical of offices set up a decade or more ago. Sign-in, file shares and printers run through a server in the closet. If you use Microsoft 365 too, users probably have a separate cloud password, which causes confusion and help desk calls.

2. Hybrid: AD synced to Entra ID

The most common setup today. Microsoft Entra Connect Sync or the newer Entra Cloud Sync copies users and groups from AD to Entra ID, so staff use one password everywhere. According to Microsoft’s documentation, Cloud Sync uses a lightweight on-premises agent with configuration managed in the cloud, and synchronization runs every two minutes. Devices can be hybrid joined to both directories.

3. Cloud only: Entra ID with Intune

No domain controller. Users exist only in Entra ID, laptops are Entra joined and managed with Intune, and files live in OneDrive, SharePoint or Teams. Microsoft says Entra join suits both cloud-only and hybrid organizations, works with Windows 10 and 11 (except Home editions) and macOS 13 or newer, and supports provisioning through Windows Autopilot.

When you can drop the domain controller

Use this checklist. If every answer is yes, a cloud-only setup is realistic.

  • Email and calendars are already in Microsoft 365.
  • Shared files can move to SharePoint, Teams or OneDrive without breaking workflows.
  • Your line-of-business applications are cloud-based, or their vendor supports Entra ID sign-in.
  • No software requires LDAP, Kerberos or domain membership to function.
  • Printers can work through Universal Print, direct IP printing or a cloud print service.
  • You have, or will buy, licenses that include Intune for device management, such as Microsoft 365 Business Premium as of 2026.
  • Remote and hybrid staff outnumber, or soon will outnumber, people who only work in the office.

If one or two answers are no, you may still be able to go cloud-first and keep a small footprint for the exceptions. Microsoft Entra Domain Services provides managed domain join, Group Policy, LDAP and Kerberos in Azure for legacy applications, without you running domain controllers.

Not sure whether your office still needs its server? Our free Technology Health Assessment takes about 30 minutes of data collection. The next day you get a plain-language report rating your IT operations, cybersecurity, applications, integration, automation, AI opportunities, technology spending and business continuity, with a short list of next steps in order. It is yours to keep, with no obligation. Book your assessment.

Why this decision is timely

  • Server end of support. Microsoft’s lifecycle page lists January 2027 as the end of extended support for Windows Server 2016. Many small-office domain controllers run that version or older. Replacing the hardware and license is a natural moment to ask whether you need it at all.
  • Remote work. Group Policy and on-premises sign-in work best on the office network. Laptops that rarely visit the office drift out of date.
  • Security and insurance. Insurers commonly ask about MFA and device management. Entra ID and Intune make both easier to enforce consistently.
  • Fewer moving parts. No domain controller to patch, back up or replace, and one less target for attackers.

How to migrate from AD to Entra ID

  1. Inventory dependencies. List every application, file share, printer, scanner and script that uses AD.
  2. Sync first if you have not already. Set up Entra Connect or Cloud Sync so identities match in both directories.
  3. Turn on MFA and Conditional Access in Entra ID before moving devices.
  4. Move files to SharePoint and OneDrive, with permissions mapped to groups.
  5. Set up Intune policies that replace the Group Policy settings you actually rely on: updates, encryption, password and screen lock rules, software deployment.
  6. Move devices in waves. New and reset laptops go straight to Entra join through Autopilot. Existing laptops are reset or migrated on a schedule.
  7. Handle the exceptions. Legacy apps move to a hosted version, Entra Domain Services or a small remaining server.
  8. Retire the domain controller only after a quiet period with sync stopped and nothing breaking, and keep a final backup.

Expect a small office migration to take weeks rather than days, mostly because of file moves and device resets. Doing it during a planned hardware refresh reduces disruption.

Risks to plan for

  • Old applications that silently use AD for sign-in and break after the move
  • Mapped drives and scanning-to-folder workflows that point at the server
  • Shared PCs, such as front desk or shop floor machines, which need a different Intune setup
  • Admin accounts in Entra ID without MFA or with too many people holding Global Administrator
  • No backup of Microsoft 365 data after the server, and its backup job, are gone

JLB USA manages Microsoft 365 and Google Workspace as part of our managed IT service for businesses with roughly 25 to 100 employees. Our guide to Microsoft 365 security settings covers the Entra ID protections to turn on first, and our cybersecurity services include MFA, access reviews and same-day removal of leavers.

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Questions we hear

Is Entra ID the same as Azure AD?

Yes. Microsoft renamed Azure Active Directory to Microsoft Entra ID. It is a cloud identity service and is different from on-premises Active Directory Domain Services.

Can Entra ID replace Active Directory?

For many small businesses, yes, if their apps are in the cloud and nothing depends on LDAP, Kerberos or domain membership. Legacy applications may need Entra Domain Services or a remaining server.

Do I need Entra Connect?

Only if you keep on-premises Active Directory and want the same accounts and passwords in Microsoft 365. Cloud-only organizations do not need it.

What replaces Group Policy without a domain controller?

Intune or another mobile device management tool applies settings such as updates, encryption and password rules to Entra-joined devices over the internet.

Can Entra-joined laptops still use office file servers?

Yes. Microsoft says Entra-joined devices can still authenticate to on-premises servers, such as file and print, when on the organization’s network and the environment is hybrid.

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