Federation is an important part of any Identity Management (IdM) program. It allows organizations to do a number of things that are not possible otherwise. For instance, it enables companies to expose their Web sites and services to users in other organizations without requiring them to have a second account that they have to login with. Federation works in the other direction too, enabling single sign-on (SSO) to such third-party applications. This is very importance as organizations begin utilizing the cloud and opening up data as APIs. Whether providing cloud services or consuming them, federation is crucial because it gives customers a way to access the cloud without having to authenticate with an addition username and password. Federation can be thought of as a bridge that users can cross to consume cloud services. Coupled with an identity hub, it is possible for organizations to provide users with access to hundreds of cloud services by making a single connection to the hub.

Federated Web SSO also allows companies to white-label services offered by multiple third-parties as a single aggregated offering. For instance, a retail e-commerce site can use federation to bring together functionality from a financial institution, an on-line payment processor, and various social networks. In this way, the brand strength and value of the retailer is increased by allowing its customers to use a branded credit card to make payments from the same Web site they use to purchase items. By also leveraging social identities, the site's registration process is simpler, resulting in reduced friction, increases conversion rates, and more engagement.

As organizations merger and grow through acquisition, they often end up with disparate technologies. This can be problematic if a company ends up with two Identity and Access Management (IAM) platforms. When this happens, one can be replaced with the other, but this is a very time consuming, costly, and risky proposition. Alternatively, federation can be used to provide SSO between applications exposed by each of the IAM systems, allowing the two infrastructures to coexist unchanged.

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