Understanding Named Accounts vs Service Accounts in Microsoft 365 and Azure
- fabztechtips
- Apr 28
- 3 min read
When managing a Microsoft 365 or Azure environment, the terms "named account" and "service account" come up all the time — especially when it comes to licensing, security policies, and administration. But what exactly do they mean, and why does the distinction matter?
In this post, we’ll break it down clearly.
What is a Named Account?
A named account in Microsoft 365 or Azure refers to an account explicitly assigned to an individual. It's created in your organization's Azure Active Directory (Azure AD) — now called Microsoft Entra ID — and it's meant to be used by a real person for day-to-day work like checking email, using Teams, accessing SharePoint, and even administering Azure resources.
Examples of named accounts:
admin.jane.smith@yourcompany.com (for dedicated admin duties)
Key characteristics of a named account:
Tied directly to a real user.
Requires a full license (like Microsoft 365 E3, Business Premium, etc.).
Enforced with security policies like MFA (Multi-Factor Authentication) and Conditional Access.
Used for activity logging and auditing — you know exactly who did what.
Named accounts are crucial for accountability, compliance, and a secure, well-managed cloud environment.
What is a Service Account?
A service account is very different. It’s not assigned to a human being. Instead, it’s designed for background tasks, system processes, or application integrations.
Examples of service accounts:
backup.service@yourcompany.com (for a backup system)
automation.bot@yourcompany.com (for a Teams chatbot)
Key characteristics of a service account:
Tied to a system, script, or application — not a person.
May not require a full license (depending on its use).
Often authenticated with certificates, secrets, or managed identities (instead of just passwords).
Used for automated or unattended operations.
Service accounts are critical for automation but need strong protection because they can be targets for attacks.
Comparing Named Accounts and Service Accounts
Aspect | Named Account | Service Account |
Purpose | Used by a person for daily work and access. | Used by apps, systems, and scripts for automated tasks. |
Ownership | Assigned to an individual. | Assigned to a system or application. |
Examples | ||
License Requirement | Needs a full M365 license. | Might need no license or a minimal license. |
Authentication | MFA, password, conditional access. | Secrets, certificates, app registrations. |
Security Risk | Human error, phishing. | Credential leaks, machine-based breaches. |
How Named Accounts Affect Licensing
When planning your Microsoft 365 or Azure subscription costs, named accounts drive licensing.
Every named user account must have a valid license if they need access to services like Exchange Online (email), Microsoft Teams, SharePoint, or Microsoft Office apps.
Service accounts:
May require a license if they access user-facing services (like sending emails).
Might not need a license if only operating backend processes, or they might use a cheaper license like an Exchange Online Plan 1 if sending/receiving email is needed.
Example:
alex.roberts@yourcompany.com → needs an M365 E3 or Business Premium license.
backup.service@yourcompany.com → may not need a license unless it needs to interact with licensed services.
Quick Summary
[NAMED ACCOUNT] - Real human - Full license - MFA enforced - Regular logins [SERVICE ACCOUNT] - Machine/app - May or may not need a license - Authenticates with secrets or certificates - Background or automated tasks
Best Practice Tips for Managing Named and Service Accounts
Use a naming convention:For admins: admin.firstname.lastname@yourcompany.com For service accounts: svc.backup@yourcompany.com, svc.automation@yourcompany.com
Enforce MFA on all named accounts.
Secure service accounts with managed identities, certificates, or app secrets — avoid simple passwords.
License only what is necessary: Don't waste full licenses on basic service accounts that don’t need them.
Audit regularly: Know which accounts are active, licensed, and properly secured.
Final Thoughts
Understanding the difference between named accounts and service accounts is vital to securing your Microsoft 365 and Azure environments — and managing costs efficiently. By treating human users and machine users differently, you’ll set up a system that’s more secure, easier to manage, and fully compliant with licensing rules.
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