Secure Automation in Azure: How to Choose Between Service Principals and Managed Identities

Read full article here: https://www.oasis.security/blog/service-principal-vs-managed-identity-in-azure/?utm_source=nhimg

As enterprises scale in Azure, one of the most common identity management questions resurfaces: When should I use a Managed Identity, and when should I use a Service Principal?
It’s a question that carries real security weight — because using the wrong identity type can mean unnecessary secrets, excessive permissions, and hidden operational risk.

This article breaks down both identity types in practical, clear terms — helping IAM engineers, DevOps teams, and security leaders make confident, risk-aware decisions.

Understanding the Difference

Service Principal

A Service Principal is an application identity registered in Microsoft Entra ID (formerly Azure AD). It represents a digital actor — like a CI/CD pipeline, automation script, or third-party integration, that needs access to Azure resources.

• Uses client secrets or certificates for authentication.
• Requires manual credential rotation and lifecycle management.
• Works well for external or hybrid workloads, such as on-prem systems or multi-cloud setups.

Managed Identity

A Managed Identity is an Azure-managed identity automatically created and maintained by the platform. It removes the need for secret management entirely.

• Fully managed credentials by Azure (no rotation, no vaulting).
• Available in two forms: System-assigned and User-assigned.
• Best suited for Azure-native workloads, such as Virtual Machines, Function Apps, or Web Apps.

In short:

• Managed Identity = Secretless, cloud-native, low maintenance.
• Service Principal = Flexible, external, secret-dependent.

When to Use Each

Use a Service Principal when:

• Your application runs outside Azure (e.g., GitHub Actions, on-prem Terraform).
• You’re integrating multi-cloud or third-party services.
• Secrets can be securely stored in a vault like Azure Key Vault.

Use Managed Identities when:

• The workload is fully Azure-based (VMs, Functions, App Services).
• You want automatic credential management with no manual rotation.
• You’re pursuing a Zero Trust, least-privilege architecture in the cloud.

Security Implications

In practice, Service Principals demand continuous governance — secret rotation, monitoring for privilege creep, and lifecycle reviews.
Meanwhile, Managed Identities minimize credential-related risks and reduce the human error factor.

Best Practices for NHI Security in Azure

1. Default to Managed Identities for all Azure-native workloads.
2. Limit Service Principals to specific, external use cases.
3. Protect all Service Principal credentials using vaults — never hardcode secrets.
4. Apply least-privilege access with RBAC policies and just-in-time permissions.
5. Audit identity usage regularly using Entra ID sign-in logs and Azure Activity Logs.
6. Automate credential rotation and expiration alerts for Service Principals.

How Oasis Strengthens NHI Visibility

Oasis provides unified visibility and governance for all non-human identities (NHIs), including both Managed Identities and Service Principals, across hybrid and multi-cloud environments.

With Oasis, teams can:

• Discover every NHI and map its associated permissions and resources.
• Identify stale, orphaned, or over-privileged identities.
• Automate provisioning and capture ownership, purpose, and justification at creation.
• Standardize lifecycle controls with attestation, rotation, and safe decommissioning.
• Prioritize remediation based on real risk exposure and business impact.

This visibility allows organizations to migrate securely toward managed, secretless identities — without breaking dependencies or disrupting operations.

Final Takeaway

Choosing between Service Principals and Managed Identities is more than a design decision — it’s a strategic identity security choice.

• Use Managed Identities wherever possible to eliminate secrets and reduce attack surface.
• Use Service Principals only when necessary — and treat them with the same rigor as privileged accounts.

The future of Azure identity is secretless, governed, and autonomous.
By aligning your IAM strategy now, you prepare your environment for the next generation of non-human identity security in the cloud.