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+# Azure MCP Server Telemetry Guide
+
+> **⚠️ Note:** This guide is a work in progress and will be expanded in future revisions with more detailed information about telemetry collection, configuration options, and data handling practices.
+
+## Overview
+
+The Azure MCP Server includes built-in telemetry capabilities to help monitor server performance, diagnose issues, and improve the overall quality of the service. Telemetry is collected using OpenTelemetry and can be exported to Azure Application Insights.
+
+## Telemetry Architecture
+
+### Version 2.0.0-beta.5 and Earlier
+
+In version 2.0.0-beta.5, telemetry configuration is common for both:
+- **Microsoft-owned Application Insights instance**: Collects aggregated usage data to improve the product
+- **User-provided Application Insights instance**: Allows users to monitor their own deployments
+
+Both telemetry streams share the same configuration pipeline and collect the same set of metrics, traces, and logs.
+
+### Version 2.0.0-beta.6 and Later
+
+Starting with version 2.0.0-beta.6, additional telemetry capabilities have been added specifically for user-provided Application Insights instances:
+
+**New in 2.0.0-beta.6:**
+- **HTTP Trace Instrumentation**: Captures detailed traces of incoming and outgoing HTTP requests when running in HTTP transport mode
+- **ASP.NET Core Instrumentation**: Monitors incoming HTTP requests to the MCP server
+- **HttpClient Instrumentation**: Tracks outgoing HTTP calls to Azure services and external APIs
+- **Smart Filtering**: Prevents telemetry loops and duplicate spans from Azure SDK operations
+
+This enhanced telemetry is only enabled for self-hosted scenarios running in HTTP mode and requires explicit configuration via the `APPLICATIONINSIGHTS_CONNECTION_STRING` environment variable.
+
+## Configuration
+
+### Environment Variables
+
+| Variable | Description | Default |
+|----------|-------------|---------|
+| `AZURE_MCP_COLLECT_TELEMETRY` | Enable or disable all telemetry collection | `true` |
+| `AZURE_MCP_COLLECT_TELEMETRY_MICROSOFT` | Enable or disable Microsoft-owned telemetry | `true` |
+| `APPLICATIONINSIGHTS_CONNECTION_STRING` | Connection string for user-provided Application Insights (required for HTTP trace telemetry in 2.0.0-beta.6+) | Not set |
+| `AZURE_MCP_ENABLE_OTLP_EXPORTER` | Enable OpenTelemetry Protocol (OTLP) exporter | `false` |
+
+### Disabling Telemetry
+
+To completely disable telemetry collection:
+
+```bash
+export AZURE_MCP_COLLECT_TELEMETRY=false
+```
+
+To disable only Microsoft telemetry while keeping your own:
+
+```bash
+export AZURE_MCP_COLLECT_TELEMETRY_MICROSOFT=false
+```
+
+### Enabling HTTP Trace Telemetry (2.0.0-beta.6+)
+
+For self-hosted scenarios running in HTTP mode, configure your Application Insights connection string:
+
+```bash
+export APPLICATIONINSIGHTS_CONNECTION_STRING="InstrumentationKey=...;IngestionEndpoint=...;LiveEndpoint=..."
+```
+
+**Requirements:**
+- Server must be running in HTTP transport mode (`--transport http`)
+- `AZURE_MCP_COLLECT_TELEMETRY` must not be set to `false`
+- Valid `APPLICATIONINSIGHTS_CONNECTION_STRING` must be provided
+- Only available in Release builds
+
+## What Data is Collected
+
+### Common Telemetry (All Versions)
+
+- Command execution metrics
+- Tool invocation traces
+- Performance metrics (duration, latency)
+- Server startup and configuration metadata
+
+### HTTP Trace Telemetry (2.0.0-beta.6+)
+
+**For user-provided Application Insights only:**
+- Incoming HTTP request details (method, path, status code, duration)
+- Outgoing HTTP request traces to Azure services
+- Request dependencies and correlation
+- Distributed tracing across service boundaries
+
+**Filtered out to prevent issues:**
+- Application Insights ingestion requests (prevents telemetry loops)
+- Duplicate spans from Azure SDK operations (SDK already creates spans)
+
+## Transport Modes
+
+### STDIO Mode
+- Standard telemetry only (metrics, traces, logs)
+- No HTTP instrumentation
+
+### HTTP Mode
+- All standard telemetry
+- **Additional HTTP trace instrumentation** (2.0.0-beta.6+) when configured with `APPLICATIONINSIGHTS_CONNECTION_STRING`
+- Suitable for remote/self-hosted deployments
+
+## Privacy and Data Handling
+
+> **Note:** Detailed information about data handling practices, retention policies, and privacy considerations will be added in a future revision of this guide.
+
+### General Principles
+
+- Telemetry does not capture sensitive data such as passwords, keys, or connection strings
+- Request/response payloads are not logged in telemetry
+- Personal identifiable information (PII) is not intentionally collected
+- Users can disable telemetry at any time using environment variables
+
+## Troubleshooting
+
+### Telemetry Not Working
+
+1. **Check environment variables**: Ensure `AZURE_MCP_COLLECT_TELEMETRY` is not set to `false`
+2. **Verify connection string**: For HTTP traces, ensure `APPLICATIONINSIGHTS_CONNECTION_STRING` is valid
+3. **Confirm transport mode**: HTTP trace telemetry only works in HTTP mode
+4. **Check build configuration**: HTTP trace telemetry is only enabled in Release builds
+
+### Viewing Telemetry Data
+
+To view telemetry in Application Insights:
+
+1. Navigate to your Application Insights resource in Azure Portal
+2. Use **Application Map** to see distributed traces
+3. Use **Performance** blade to analyze request durations
+
+## Future Documentation
+
+This guide will be expanded to include:
+
+- Detailed telemetry schema and data models
+- Custom telemetry integration examples
+- Advanced filtering and sampling configuration
+- Performance impact and optimization guidelines
+- Complete list of collected telemetry attributes
+- Data retention and compliance information
+- Telemetry dashboards and query examples
+
+## Related Documentation
+
+- [OpenTelemetry Documentation](https://opentelemetry.io/docs/)
+- [Azure Monitor OpenTelemetry Exporter](https://learn.microsoft.com/azure/azure-monitor/app/opentelemetry-enable)
+- [Application Insights Overview](https://learn.microsoft.com/azure/azure-monitor/app/app-insights-overview)
+
+## Support
+
+For questions or issues related to telemetry:
+- [Report an issue](https://github.com/microsoft/mcp/issues)
+- [Contributing guidelines](../../CONTRIBUTING.md)