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I'm trying to add a new user. But the prompt says "Select user from directory" and when typing an email address to invite it just says "No identities found". I have a new account with default settings and has been not linked to any Azure subscription.

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An Azure Active Directory requires that all users are directory members before they can get access to your Team Services account. So, add the user to your AAD first.

"External guest access" will be used for external users who are added using B2B collaboration by your Azure AD administrator or added as guests through Office 365.

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