External users can't open documents in desktop application

Hi all,

This behavior is expected (external users not getting the "Open in Office" option) whenever the external user is authenticating via the new one time passcode (OTP) method. You can see a better overview here: Documentation

There are two states an external user can be in today: If they are authenticating via OTP, then they do not have a real AAD account and thus cannot open in clients. This occurs when you share a file or folder with an external user who is not in your directory (i.e. they have never been shared to before).

Inviting a user to a site or a group or using the Azure B2B platform will create an account in AAD for the guest user. These users must have an MSA or AAD account to sign-in with to accept the invitation. They can use Office apps.

This is definitely something we're looking to improve and I definitely suggest you check out the "What's new in External Sharing & Collaboration with OneDrive & SharePoint" talk at Ignite next week ;)