In this case, the Outlook client takes the IMAP credentials provided by your email provider to access the application and transfers them directly to Microsoft's cloud over TLS. This is true of both OAuth and IMAP workflows but is most visible when authenticating with a third-party IMAP server. We could not observe any traffic traveling directly from the client to our email provider. From this point, all processing (including the fetching of your emails) is handled in the cloud. Instead of your email client authenticating, your credentials are passed to the Microsoft cloud, which authenticates on your behalf. From this warning, a user might reasonably assume that the email client they're logging into will continue acting as an email client and that the client might send some limited data for processing in the cloud.
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