*Diret connections to SQL Azure aren't supported by SharePoint Online. You need a Azure WCF Service as a wrapper around SQL Azure. Steve Fox has written a blog post about this: Leveraging Windows Azure WCF Services to Connect BCS with SharePoint Online. Seems that it had worked was a bug ;-)*
Exciting news SharePoint Online now supports Business Connectivity Services (BCS)! What many people really missed in SharePoint online was the ability to connect to external systems. With the last update Microsoft has enabled the eagerly awaited
BCS support in SharePoint Online. BCS within SharePoint Online supports SQL and WCF connections which you can easily setup with SharePoint Designer. What is not supported are custom .NET connectors build in Visual Studio. The reason for this restriction is the fact that custom .NET assemblies have to be deployed to the global assembly cache on the server and this sort of deployments aren’t allowed in SharePoint Online.
In this post I’m going to show you how to connect SharePoint Online to SQL Azure.
Setup Northwind Sample DB in SQL Azure
If you haven’t an Azure account yet, you can request a free trial
here. Go to the Azure Management Portal and select database on the left pane. Choose your subscription and create a new database server. Enter your admin credentials for the server and add a firewall rule to enable connections from outside (IP Range 0.0.0.0 – 255.255.255.255). Create a new database called Northwind. In the ribbon click on manage to open the SQL Azure Management tool. Login, go to database schema and data and click open query and upload and run the following
SQL script (the script has been adapted from the following CodePlex project
http://nwindazure.codeplex.com).
Configure SharePoint Secure Store
In order to be able to connect BCS to SQL Azure we must add the SQL credentials to the Secure Store in SharePoint Online. Go to the SharePoint Online Admin Console within the Office 365 Management Portal. You will find two new menu items (Manage Business Data Connectivity and Manage Secure Store Service).

Go to “Manage Secure Store Service” and create a new Secure Store Application called “Northwind” as shown bellow.

After the application has been created you need to set the credentials. You could create a new user in SQL Azure or you can use the admin user that you have specified when you’ve created the database (not recommended for production).
Configure Business Data Connectivity Services
Before you can create a new external content type you have to give your user admin rights in BCS. Go to “Manage Business Data Connectivity” and select “Set Metadata Store Permissions”.
Create the External Content Type in SharePoint Designer
Now we can create a new external content type in SharePoint Designer. Start SharePoint Designer and open a site in SharePoint Online.

Name the external content type “Customer” and choose the external system to connect to.

Choose “SQL Server” for data source type.

Copy and paste the full qualified name of your Azure SQL Server to the “Database Server” field (you can find the name in the Azure Management Portal). Choose “Connect with Impersonated Custom Identity” and enter “Northwind” (the name that we have defined for our Secure Store Application).
Create all operations for the Customer table (read list, read, edit, new, delete)

Go to the following dialogs with next, next, next and save the external content type. To create a list based on on our new external content type select “Create Lists & Form” (optionally you can decide to generate infopath forms instead of usual SharePoint list forms ).
Set Permissions for The External Content Type
To define who has access to our new external content type go back to the SharePoint Online Admin Console and navigate to “Manage Business Data Connectivity” and choose set permissions.
Test It
Now check that everything works as expected. Open your team site and navigate to your new external list.
The End
In my next post I’ll show you how to connect an Azure WCF Service to SharePoint Online.