Simply, no. Azure AD cannot fully replace Active Directory.
The cloud-specific Azure AD can work for organizations with zero on-premises infrastructure, but not without losing security. Running solely on Azure AD also includes numerous extra steps.
Most notably, Azure AD does not interact with a domain controller like Active Directory does, nor is it simply a directory that is hosted in the cloud.
Active Directory is used to manage users, while Azure AD manages users’ access to cloud applications.
Because Azure AD is designed to manage users and devices on Azure and Microsoft 365, it would not manage users and devices trying to access resources or applications outside of the cloud.
Take for example a shared hard drive. Azure AD is reliant on Active Directory to have these objects already logged.
In this case, users authenticate themselves onto their network using credentials on AD. They need this network access to be able to then authenticate themselves onto Microsoft 365 using Azure AD, unless a business operates fully through Microsoft 365.
The two sets of credentials are not tied together, though they can be fused using software called Azure AD Connect.
Because not all applications or resources can be replicated in the cloud, and specifically through Microsoft 365, many organizations can not function independent of their local networks.
If an organization is insistent on running solely through Azure AD, they will need to run their own virtual machine(s) to host any applications that are not available via software-as-a-service (SaaS) in the cloud and domain controller through Azure.
If the virtual machines used to run applications need to be joined to an organization’s domain, that requires running a domain controller through Azure, or use Azure AD’s Domain Services.
Otherwise, Azure AD does not contain group policies. These policies are based on users and devices being listed as objects within traditional Active Directory.
Azure AD also lacks support for many of the authentication protocols that keep your data safe. Common authentication protocols like LDAP are not recognized by Azure AD.
Things begin to get even more complex when managing non-Microsoft devices. Considering the market share of mobile devices is strongly in favor of non-Microsoft devices, Azure AD needs to be propped up by Active Directory.
It is possible to replace Active Directory with Azure AD in some cases, but because of the lack of authentication protocols in Azure AD, it is never ideal. Doing so requires some concessions in security and is ultimately a lot of additional work.
