Multi tenant architecture basically means that a single instance of software serves multiple users who are called tenants. Tenants or users in a multi tenant architecture have their own data, configuration within the same instance. Counter part of multi tenant architecture is multi instance architecture where each user runs its own instance of software on the server.
Multi-tenancy is associated with cloud computing and most cloud SaaS companies architect their software in such a format. Multi-tenant applications are designed in such a way that two different tenants don’t have access to each other’s private data.
Salesforce is a very good example of a cloud saas company which leverages multi-tenant cloud to deliver shared computing services and applications to businesses of all sizes. No matter if you are mom and pop store down the road or a multinational corporation, everybody gets access to same computing power, data storage and core features.
One good analogy to explain multi tenancy is that in a multi tenant cloud a user essentially rents out an apartment and shares it with other neighbours while getting all the shared benefits of cost, infrastructure and security.
There are some clouds which use virtualisation based multi-tenancy but it is the software logic defined multi tenancy which has become an industry practice.
Based on how much the core application of SaaS app is shared among the tenants, multi-tenancy can be classified to have various degrees. High degree means that infrastructure, platform and core software application — all are multi tenant while low degree means that infrastructure and platform are multi-tenant but SaaS app which sits on top of it is single tenant.
Concept of multi-tenancy has evolved over many decades starting from notion of Time-sharing, which used single mainframe computers and applications to save on physical space (mainframes used to cover entire rooms at that time ) and cost in 1960s.
Then there were ASPs or application service providers which followed the same architecture but they operated at a higher cost and rather slightly inefficiently as compared to today's web applications.
Then in 2000 came the true web based multi-tenant applications which served entire userbase ( for example hotmail’s millions of users) with one single instance of application.
Multi-tenancy has many benefits such as cost saving, better security, easier release management etc which makes it an obvious choice for both cloud based software companies and customers alike.