Office 365 is used by many organizations to offer mail and calender functionality to users. A common scenario is the usage of Office 365 in retail. Staff in shops just have access to Office 365.
IT can make two choices for management of user accounts for Office 365 users.
- create user accounts in Azure Active Directory (AAD)
- create user accounts in on-premises Active Directory and sync those to AAD.
The advantage of option 2 is central management. There is just a single directory to manage. Another advantage is that users which need to authenticate to AD can use a single useraccount and password.
To synchronize user accounts and passwords stored in on-premises AD to AAD Microsoft offers a free tool called DirSync.
Mind that for each user account a Windows Server Client Access License (CAL) is required! The cost for such a CAL is about Euro 30,- or $ 40,- per user or device