Modern applications need identities just like people do. Employees use user accounts to access company resources. Software needs its own way to prove its identity and request access.
This is where service principals, service accounts and managed identities come in.
A service account is a general term for an identity used by software, applications, or automated processes. A service principal is a Microsoft Entra identity that applications and services use to authenticate and access resources.
A managed identity is a Microsoft Entra identity provided for supported Azure resources and workloads, helping applications access resources without managing credentials directly. Choosing the right identity model can reduce security risks and simplify administration.
The main goal is to give software only the access it needs while avoiding unnecessary credentials.
What Is a Service Principal?
An Entra service principal is a non-human identity created in Microsoft Entra ID. Applications use it to sign in and request access to cloud resources. It can represent software such as a web application. It can also represent an automation script or deployment tool.
A service principal does not work like a normal employee account. It is designed for software that needs to operate without a person being present.
- Controlled Access: A service principal can receive specific permissions in Azure and Microsoft Graph. Administrators can limit those permissions based on what the application actually needs.
- Multiple Credentials: Service principals can use client secrets or certificates for authentication. In comparisons of service principal vs managed identity, they can also use federated credentials to avoid long lived secrets.
- Token-Based Authentication: The application authenticates with Microsoft Entra ID and receives an access token. It then uses that token when calling an approved resource or API.
- Tenant-Based Identity: An application registration creates an application object that defines the application's identity and authentication configuration. A service principal is the local representation of that application within a specific Microsoft Entra tenant, enabling it to access resources and perform actions in that environment.
What Is a Service Account?
A service account is a general term for an account used by software or automated processes. Service accounts have been common in IT environments for many years. They can be found in Windows Server environments, Active Directory and Linux systems.
Traditional service accounts are often connected to local servers and domain environments. A database service may use one account to access files. A backup process may use another account to connect to a storage location.
There are several types of service accounts depending on the platform and purpose.
- Traditional Accounts: Traditional service accounts usually depend on usernames and passwords. They are often used by older applications and background services that need a fixed identity.
- Managed Domain Accounts: Group Managed Service Accounts can automatically manage passwords in supported Active Directory environments. This reduces the need for administrators to manually update passwords.
- Legacy Application Support: Service accounts can still be necessary for older applications. These applications may not support Microsoft Entra ID or modern authentication methods.
- Controlled Permissions: Service accounts should only receive the access required for their tasks. Practicing proper service account security by avoiding unnecessary administrator rights limits the impact of a credential compromise.
What Is a Managed Identity?
A managed identity is an identity provided by Azure for applications and services running on Azure. It allows an application to access other Azure resources without storing a password or secret in the application.
For example an Azure App Service may need to read data from Key Vault. Instead of storing a secret inside the application the App Service can use a managed identity. Azure handles the identity credentials in the background.
- No Stored Passwords: Developers do not need to place a client secret inside application code. This reduces the chance of credentials being exposed through source code or configuration files.
- Automatic Credential Management: Azure manages the underlying credentials for the identity. Application teams do not need to build their own credential rotation process.
- Azure Resource Access: A managed identity can be given access to supported Azure resources. Permissions are normally controlled through Azure role-based access control.
- Two Identity Options: Azure provides system-assigned and user-assigned managed identities. Each option has a different lifecycle model.
System-Assigned Managed Identity
A system-assigned identity is created as part of an Azure resource. Its lifecycle is directly connected to that resource.
- Resource-Tied Lifecycle: The identity exists while the related Azure resource exists. When the resource is deleted the identity is also removed.
- Dedicated Identity: Each resource can have its own identity. This is useful when an application needs a separate permission set from other workloads.
User-Assigned Managed Identity
A user-assigned identity is created separately from the Azure resource that uses it. This gives administrators more control over its lifecycle.
- Shared Identity: One user-assigned identity can be connected to multiple Azure resources. This is useful when several resources perform the same type of task.
- Independent Lifecycle: Removing one Azure resource does not remove the identity. The identity can continue to be used by other resources.
Service Principal vs Service Account vs Managed Identity
These three identity models solve a similar problem. They allow software to access resources without requiring a person to sign in. The main differences are where they operate and how their credentials are managed.
In a comparison of a service account vs service principal, a service account is common in traditional infrastructure. A service principal is designed for applications that work with Microsoft Entra ID. A managed identity is designed for supported Azure resources.
- Traditional Infrastructure: Service accounts are common in local servers and older enterprise applications. They are useful when software depends on Windows domains or traditional authentication.
- Applications and Automation: Service principals are commonly used by applications and automated workloads that need to authenticate with Microsoft Entra ID, including workloads running outside of Azure. They enable secure access to resources and services without requiring a user account.
- Azure Workloads: Managed identities are designed for applications running on supported Azure services. They remove much of the credential management work from developers.
- Credential Management: Service accounts and standard service principals may require active credential management. Managed identities let Azure handle the underlying credentials.
Service principal vs Managed identity
A managed identity is closely connected to a service principal. When Azure creates a managed identity it creates an identity object in Microsoft Entra ID. Azure then manages the credentials and lifecycle behind the scenes.
The main difference is responsibility. With a normal service principal the organization manages authentication credentials and configuration. With a managed identity Azure manages much of that work.
- External Workloads: A service principal can work with applications running outside Azure. This makes it useful for local systems, other cloud providers and external automation platforms.
- Azure Workloads: A managed identity is designed for supported Azure resources. Azure handles its credentials which reduces the amount of secret management required from developers.
When a Managed Identity Makes Sense
Managed identities are a strong fit for applications that already run inside Azure. They allow Azure resources to request tokens without storing traditional application secrets.
- Azure Application Access: An Azure Function can use a managed identity to access Key Vault or Azure Storage. The application does not need to keep a password in its configuration.
- Reduced Maintenance: Azure handles the identity credentials behind the scenes. Development teams can focus on permissions instead of building their own credential rotation process.
When a Service Principal Makes Sense
A service principal is useful when Azure cannot manage the workload identity directly. This commonly happens when an application runs outside Azure.
- External Automation: External deployment platforms can use federated credentials with a service principal. This allows the platform to access Azure without storing a permanent password.
- Non-Azure Applications: Applications running on local servers or another cloud can use a service principal. They can then authenticate with Microsoft Entra ID and access approved Azure resources.
Service Account vs Service Principal
A traditional service account and a service principal both represent software. Their main difference is the identity system they belong to.
A service account is usually connected to an operating system or directory environment. A service principal belongs to Microsoft Entra ID and is designed for modern cloud authentication.
- Local Systems: Service accounts are common with local servers and older applications. They often work with Active Directory and traditional domain authentication.
- Authentication Model: Traditional service accounts may depend on passwords and domain protocols. Service principals can use certificates or federated authentication.
- Modernization: Moving a legacy application to the cloud may require changing its identity model. The application should be reviewed before replacing an existing service account.
Types of Service Principals in Microsoft Entra ID
Microsoft Entra ID supports different service principal types for different scenarios. Understanding these types helps administrators know what they are looking at when reviewing enterprise applications.
A Microsoft Entra service principal can represent an application, a managed identity, or a legacy application. Microsoft Entra classifies these as Application, ManagedIdentity, and Legacy service principal types.
- Application Service Principals: These represent an application inside a specific tenant. Administrators can assign permissions based on the resources that application needs.
- Managed Identity Principals: These are created when Azure resources use managed identities. Azure manages their credentials and lifecycle.
- Legacy Principals: Older environments may contain service principals created through previous application or integration models. These identities should be reviewed before making changes.
- Identity Governance: Every service principal should have a clear purpose and owner. Regular reviews can help identify identities that are no longer needed.
How Service Principals Authenticate
A service principal needs a way to prove its identity. Microsoft Entra ID supports several authentication methods. The right method depends on the application and its environment.
Client secrets are one option. They are simple to configure but they must be protected and rotated. Certificates provide a stronger authentication method when their private keys are managed correctly.
Workload identity federation is another modern option. It allows an external identity provider to establish trust with Microsoft Entra ID without requiring a long lived secret.
Client Secrets and Certificates
Client secrets work much like passwords for applications. They are easy to create but can create security problems if they are exposed.
- Secret Protection: Client secrets should never be hardcoded in source code. They should be stored in an appropriate secure system when they are required.
- Certificate Authentication: Certificates use a private key to prove the application's identity. They can provide stronger protection than simple text secrets when managed correctly.
Workload Identity Federation
Federation allows an application to use a trusted external identity provider. This is useful for services such as external CI/CD platforms and other cloud workloads.
- No Long-Lived Secret: Federation can remove the need for a permanent client secret. The external workload presents a trusted token instead.
- Temporary Access: Microsoft Entra ID validates the external token and provides an access token for the requested resource. This reduces the risk associated with long lived credentials.
Permissions and Access Control for Non-Human Identities
An identity should never receive more access than it needs. This principle is called least privilege. It is one of the most important rules for protecting service accounts and cloud identities.
Azure role-based access control can control access to Azure resources. Microsoft Graph permissions can control access to Microsoft 365 data and directory resources.
- Limited Azure Roles: Assign Azure roles at the smallest practical scope. A backup application may only need access to one storage resource rather than an entire subscription.
- Careful API Permissions: Microsoft Graph application permissions can provide broad access to organizational data. These permissions should be reviewed carefully before administrator consent is given.
- Regular Reviews: Application permissions can become excessive over time. Regular reviews help remove access that an application no longer needs.
- Clear Ownership: Every non-human identity should have an owner or responsible team. This makes it easier to investigate unusual activity and approve future access changes.
Security Risks of Service Principals and Service Accounts
Non human identities can become valuable targets because they often work without direct human supervision. Some identities may also have access to sensitive resources.
Credential exposure is one of the most common risks. A secret stored in source code or a configuration file can be stolen. Attackers may then use that credential until it expires or is revoked.
- Credential Exposure: Secrets should never be placed directly inside source code. Secure storage should be used when applications need credentials.
- Excessive Permissions: An application should not have administrator rights unless they are truly required. Removing unnecessary permissions limits the damage from a compromised identity.
- Orphaned Identities: Old identities may remain after an application is retired. These accounts should be identified and removed when they are no longer needed.
- Weak Monitoring: Non-human identities should be included in security monitoring. Unusual sign-ins or unexpected access can indicate a potential compromise.
How to Choose the Right Identity Model
The right identity model depends on where the application runs and what it needs to access. The first step is to identify the hosting environment. Then review which authentication methods the platform supports.
- Azure Workloads: Use a managed identity for supported applications running inside Azure. This can remove the need to store application secrets.
- External Workloads: Use a service principal for applications running outside Azure. Workload identity federation should be considered when the external platform supports it.
- Legacy Systems: Use a traditional service account when an older application depends on the local Active Directory. Group Managed Service Accounts can reduce password management work for supported Windows workloads.
- Least Privilege: Give every identity only the permissions needed for its job. Review those permissions regularly as the application changes.
Service Principal and Identity Lifecycle Management
Identity management does not end when an identity is created. Every non-human identity requires a clearly defined lifecycle that includes ownership, access reviews, monitoring, and eventual deprovisioning when it is no longer needed.
Effective lifecycle management helps organizations understand why an identity exists, what access it requires, and who is responsible for maintaining it throughout its lifecycle.
- Clear Ownership: Assign an owner when creating every service principal or service account. The owner should understand the application's purpose and access requirements.
- Documented Purpose: Record why the identity was created and which resources it needs. Good documentation makes future access reviews much easier.
- Regular Monitoring: Review sign-in activity and permissions on a regular schedule. Unused identities should be investigated before they become security risks.
- Clean Decommissioning: Remove roles and revoke credentials when an application is retired. The identity should then be disabled or deleted when appropriate.
Infisign UniFed provides a unified identity federation framework that connects different authentication systems across environments. In modern setups with service accounts, service principals, and managed identities, UniFed acts as a single central identity layer.
It evaluates access requests in real time using risk based logic and smart policies. This helps organizations manage non-human identities alongside regular users without managing separate silos or exposing long lived secrets across platforms.
- Controls lifecycle management, permissions, and automated access reviews for all identities to prevent overprivileged access.
- Protects supported user authentication workflows with passwordless and context-aware access controls, helping reduce reliance on traditional passwords and, where supported, minimizing the use of hardcoded application credentials.
- Secures machine to machine connections and automated workflows by granting scoped tokens for internal or cloud services.
Unmanaged non-human identities leave your system open to security risks. Schedule a 15 minute meeting with the Infisign team today to fix your access policies and protect your infrastructure.
FAQ
1. What is the difference between a service principal and a service account?
A service account is a general identity used by software. It is often found on local servers and in Active Directory environments. A service principal is an identity in Microsoft Entra ID that allows applications and automation tools to authenticate with cloud services.
2. What is the difference between a service principal and a managed identity?
A service principal can be used by applications in many environments. A managed identity is designed for supported Azure resources and is managed by Azure. The main benefit is that developers do not need to store a client secret for the managed identity.
3. Is a managed identity a type of service principal?
Yes. A managed identity has a service principal representation in Microsoft Entra ID. Azure creates and manages the identity for the Azure resource which reduces the need for manual credential management.
4. When should you use a service principal instead of a managed identity?
Use a service principal when the application runs outside Azure or when the scenario requires capabilities that a managed identity does not provide. External CI/CD platforms can also use service principals with workload identity federation.
5. How are service principal credentials managed and rotated?
Client secrets and certificates need a planned rotation process. Teams should track expiration dates and replace credentials before they expire. Workload identity federation can remove the need for long lived secrets in supported scenarios.
