What Is Managed Identity in Azure?

Managed Identities are fundamentally built on Microsoft Entra ID. Each identity is created as an Enterprise Application (also referred to as a Service Principal) within Entra ID. This allows it to authenticate with other Azure services such as Azure SQL, Key Vault, and Azure Storage.
Here’s how it works:

• Azure generates and manages tokens for the identity.
• These tokens can be used to authenticate with other services.
• Developers and administrators do not need to manually update or store these tokens, as Azure handles the rotation and expiration.

In simple terms, once a Managed Identity is set up for an application, the application can communicate with other Azure services without you needing to code for any authentication processes. This seamless experience not only improves security but also saves time for teams.

Azure offers two types of Managed Identities: System-Assigned and User-Assigned.

System-Assigned Managed Identity

A System-Assigned Managed Identity is automatically created when you enable it on an Azure resource. This identity is tied to the lifecycle of the resource, meaning that when the resource (like a VM) is deleted, the identity is also deleted.

• Use Case: Suppose you have a virtual machine (VM) that needs to access an Azure SQL Database securely. You can enable a System-Assigned Managed Identity for this VM, allowing it to securely retrieve data from the SQL database without any stored credentials. Once the VM is no longer needed and is deleted, the identity automatically gets deleted.
  This setup makes System-Assigned Managed Identities ideal for workloads that only involve a single resource, like a web application hosted on a VM that requires secure access to Azure SQL​.

User-Assigned Managed Identity

On the other hand, a User-Assigned Managed Identity is created as an independent Azure resource. Unlike System-Assigned Managed Identities, User-Assigned Managed Identities are not tied to the lifecycle of any one resource. This means you can create a single identity and assign it to multiple resources as needed.

• Use Case: Imagine running several VMs that all need to access a shared Azure Key Vault. Instead of creating multiple identities, you can create a single User-Assigned Managed Identity and assign it to all the VMs. This centralized identity management streamlines the process while ensuring secure access across all resources.

There are several key advantages to using Managed Identities in Azure:

Eliminating Credential Management

The most significant advantage is that Managed Identities automatically handles credential management—no more storing credentials in configuration files or application code. As a result, the risk of exposing sensitive information (such as passwords or certificates) is greatly reduced. Furthermore, Azure handles the rotation and expiry of credentials, so you do not have to update them manually.

Role-Based Access Control (RBAC)

Azure allows you to control access to resources through RBAC. By using Managed Identities, administrators can assign specific roles to identities based on the principle of least privilege. This means that each identity only has access to the resources it needs, nothing more​.

• Security and Compliance

  In addition to offering better security through automatic credential management, Managed Identities are also compliant with important security standards like HIPAA, PCI-DSS, and ISO 27001. This makes them especially suitable for industries with strict compliance requirements, such as healthcare and financial services.

Managed Identities are versatile and can be used in many different scenarios:

• Accessing Azure Key Vault: Many applications need to store sensitive information, such as API keys and certificates, in Azure Key Vault. With Managed Identities, your application can securely access Key Vault without embedding any credentials in the code.
• Database Authentication: If your application needs to interact with an Azure SQL Database, you can use Managed Identities to authenticate securely. This eliminates the need to manage SQL credentials manually and reduces the risk of data breaches.
• API Authentication: APIs often require secure authentication to ensure that only authorized applications or users can access them. Managed Identities allow your application to authenticate with APIs without storing sensitive information in the codebase. This is crucial for maintaining application security​.

When implementing Managed Identities in Azure, there are several important factors to keep in mind:

• Cost Management

  While Managed Identities themselves are free to use, the resources associated with them, such as VMs, databases, or storage accounts, come with their own costs. It is crucial to monitor these resources regularly to ensure cost efficiency.
  For instance, a User-Assigned Managed Identity can be associated with multiple resources, such as several VMs accessing the same Azure Key Vault. In such cases, managing the usage of each resource linked to the identity is important to avoid escalating costs.
  Additionally, System-Assigned Managed Identities are tied to a single resource’s lifecycle, so once the resource (e.g., a VM) is deleted, the identity is also removed, along with any related costs. This automatic cleanup is a cost-saving measure, but it requires diligence in managing and deleting resources when no longer needed to avoid unnecessary expenses​.

• Performance Considerations

  Using managed identities can have an impact on the performance of your applications, particularly when dealing with latency in authentication requests. Ensuring that network and service dependencies are optimized will help mitigate performance issues.

• Security Practices

  It is essential to apply the principle of least privilege by assigning roles that provide only the necessary access to resources. This limits the potential for unauthorized access.

Managed Identities provide a seamless and secure way for services running in Azure to authenticate against other services without the need for credentials. This dramatically reduces security risks, eliminates the headache of manual credential management, and ensures compliance with various industry standards such as HIPAA, PCI-DSS, and ISO 27001.Our team at OTAVA specializes in maximizing Azure’s managed identity solutions, including both system-assigned and user-assigned identities. We provide tailored guidance on choosing and configuring the right identity types to balance cost and performance while ensuring secure access across your Azure environment.

By leveraging Managed Identities, you no longer need to worry about storing or rotating sensitive credentials. The automatic management of these identities, along with RBAC, allows for fine-tuned access control, ensuring that your applications are both secure and compliant. Whether you are accessing databases, securing APIs, or integrating with Azure Key Vault, Managed Identities make the process simpler, faster, and more secure.

If your business is looking to adopt managed identities for enhanced security and scalability in the cloud, contact us at OTAVA. We can help you implement a secure, scalable cloud solution using Azure Managed Identities tailored to your specific needs.