Most of the web sites and applications that use Windows Live ID are Microsoft sites, services, and properties such as Hotmail, MSNBC, MSN, Xbox 360's Xbox Live, the .NET Messenger Service, Zune or MSN subscriptions, but there are also several other companies affiliated with Microsoft that use it, such as Hoyts. Users of Hotmail or MSN automatically have a Windows Live ID that corresponds to their accounts. Most recently, user login data has started to allow demographic targeting by advertisers using Microsoft adCenter.[citation needed]

Microsoft's Windows XP has an option to link a Windows user account with a Windows Live ID (appearing with its former names), logging users into Windows Live ID whenever they log into Windows.

On August 15, 2007, Microsoft released the Windows Live ID Web Authentication SDK, enabling web developers to integrate Windows Live ID into their websites running on a broad range of web server platforms - including ASP.NET (C#), Java, Perl, PHP, Python and Ruby.

The Windows Live ID login page presents users with the existing option to sign in with the usual Windows Live ID username/password credentials, or the alternative - to sign in using Windows CardSpace.

Windows Live ID account owners can enable integration with Windows CardSpace (a component of the .NET Framework versions 3.0 and 3.5) by selecting an Information Card from the Windows CardSpace selector UI to link to their Windows Live ID. This CardSpace identity then becomes the alternate login credentials for that account, replacing the need for a password.

On October 27, 2008, Microsoft announced that it was publicly committed to supporting the OpenID framework, with Windows Live ID becoming an OpenID provider. This would allow users to use their Windows Live ID to sign-in to any website that supports OpenID authentication.

A new user entering a commerce server will first be redirected to the nearest authentication server, which asks for username and password over an SSL-secured connection, unless the user can present a valid GLOBALAUTH-cookie. In return, a newly accepted user (a) has an encrypted time-limited GLOBALAUTH-cookie stored on his computer and (b) receives a triple DES encrypted ID-tag that previously has been agreed upon between the authentication server and the commerce server. This ID-tag is then sent to the commerce server, upon which the commerce server plants an encrypted LOCALAUTH-cookie in the user’s computer, also time-limited. The presenting of these LOCAL and GLOBAL cookies to various commerce and authentication servers prevents the need for authentication within the time of validity, as in the Kerberos protocol.

If the user actively logs out of Windows Live ID, these cookies will be removed; however, users are often confused by other commerce server logout functions, and unintentionally leave these cookies intact.[citation needed] The service depends on users allowing their browsers to ship cookies to servers other than the one they originated from.

Windows Live ID is used by many services to prove ownership of a user's e-mail address. On June 17, 2007, Erik Duindam, a web developer in the Netherlands reported a privacy and identity risk, saying a "critical error was made by Microsoft programmers that allows everyone to create an ID for virtually any e-mail address." A procedure was found to allow users to register invalid or currently used e-mail addresses. Upon registration with a valid e-mail address, an e-mail verification link is sent to the user. Before using it however, the user was allowed to change the e-mail address to one that doesn't exist, or to an e-mail address currently used by someone else. The verification link then caused the Windows Live ID system to confirm the account as having a verified email address. That flaw was fixed two days later, on June 19, 2007.

Microsoft Passport, the predecessor to Windows Live ID, was originally positioned as a single sign-on service for all web commerce. Microsoft Passport had received much criticism. A prominent critic was Kim Cameron, the author of the Laws of Identity, who questioned Microsoft Passport in its violations of those laws. He has since become Microsoft's Chief Identity Architect and helped address those violations in the design of the Windows Live ID identity meta-system. As a consequence, Windows Live ID is not positioned as the single sign-on service for all web commerce, but as one choice of many among identity systems.