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A Retrospective of Virtual Data Rooms

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For anyone who is engaged into the due diligence process of deals or transactions, it is hard to imagine a time without virtual data rooms. With humble beginnings in the tried and trusted physical data rooms of the past, virtual data rooms quickly overtook their antiquated predecessors and developed into a tool that has far exceeded their initial purpose as a data repository. Here is a short VDRs retrospective for those who are interested in the history of its development.

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Initially, virtual data rooms found their purpose as a quicker and more reliable alternative to the physical data rooms that drove deals for decades before. In every major business transaction, deal or partnership there is always a need to conduct due diligence, whether it be on potential buyers, sellers or for the business itself to disclose certain information pertaining to the process. As the security of virtual data room platforms increased to match their appeal in convenience, the business world saw a huge migration to this new technology as it promised less errors, more secure data and faster deal timelines through improved efficiency and reduced costs.

Dominated by a few early movers, the market for virtual data rooms started to expand and did so at a rapid pace. Falling costs of data storage and the emergence and new-found trust for cloud computing meant newer, purely technological companies could enter the market without having to commit to large infrastructure purchases or the need to worry about managing and securing the data. This was left outsourced to various companies that provide web services.

While this outsourcing of data storage likely reduced the security of data, it was apt for most ordinary users of data rooms outside of business and lead to the rise of popular data sharing and storage sites such as Drop Box. In the business sphere, the improvements in technology meant that most companies providing virtual data rooms services could easily ensure secure data control and so instead they started to focus more on the service they provided rather than the physical security features they offered.

The improvements in the usability and flexibility of virtual data rooms that ensued pushed them into their next phase of growth and boosted them above and beyond their capacity as a data solutions service.

As companies started to use virtual data rooms more and more to complete their short-term goals in the forms of deals, people started to realize their value in assisting in the long-run operational activities of the company. Their ease of use and secure nature means they are perfectly suited to facilitate internal structures of organisations through data sharing and project collaboration.

The globalization of business has further demonstrated their value in connecting business units across geographical borders and time zones. Being able to securely discuss and share ideas through the centralized platform provided huge efficiency gains as it allows people to work whenever they can and wherever they are. In turn, this reduced the need for costly business flights and hotel accommodation allowing organisations to cut unnecessary costs at a time of financial austerity in many parts of the developed world.

Their rise in popularity also happened to coincide with an increasing rate of high profile public data breaches that lead many people to question the ethicality of large companies being allowed to store troves of personal information of their customers. With the rise of tech unicorns such as Facebook and Snap-chat, companies started to realize that customer data they had may be more valuable than their balance sheet and so started to move beyond low-level storage services and turned to virtual data rooms to take on this role.

As a whole, virtual data rooms have had a multiplier-like effect on most industries in business as their ability to reduce both deal timelines and costs lead to business increasing their deal volumes and achieving better priced deals. Looking forward, there is still much potential for the virtual data room to completely replace the traditional office space as people look more and more towards completely digitizing business and the added benefits of reducing climate change contributories such as congestion and the unnecessary use of land.

Although it is 2017, it is still far too early to tell what path virtual data rooms will take into the next decade. The only thing that is sure is that they have revolutionized the business world thus far and don’t look like they’re going to stop now.

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