Virtual data room or Dropbox data room: What to use?

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Virtual data room or Dropbox data room: What to use?

By iDeals
August 10, 2022
13 min read

The internet has moved much of our daily business from physical spaces to virtual ones.

Cloud-based storage options like Dropbox and Google Drive have made it possible for people to collaborate easily across vast distances. Instead of storing, sorting, and sharing paper in a physical conference room, business teams can handle the same information without having to leave their offices. 

However, about 35% of organizations are still extremely concerned about cloud security and 41% are very concerned. 

While tools like Dropbox and Google Drive work well for day-to-day business, they also aren’t appropriate in every situation. Relying on consumer cloud file storage as a substitute for a virtual data room (VDR) may be a recipe for disaster. 

So when Dropbox is a suitable option and when virtual data rooms will do better? Explore the article below. 

Key takeaways:

  • Dropbox and virtual data room software both offer cloud storage for file sharing and collaboration over them.
  • Though similar in many aspects, Dropbox and virtual data rooms differ in the level of security they can provide to clients.
  • Dropbox is a perfect solution for cases where no highly-confidential information is shared online, while virtual data rooms ensure a high level of security for critical documents during various complex transactions where sensitive data is involved.

The rise of cloud storage and virtual data rooms

At a glance, consumer cloud storage and virtual data rooms look similar in many ways. Both are designed to facilitate the storing and sharing of files. Both systems allow for remote access and provide a way to back up files easily, says James A. Martin, tech journalist and author of the CIO.com blog Living the Tech Life.

Cloud storage has become popular because it allows businesses to manage their data storage and analysis costs over time, says Lisa Morgan at Enterprise Storage. “Traditionally, IT departments managing capacity-strained data centers would ‘throw boxes at the problem,’ which meant continuously adding physical storage devices.”

As the amount of information grew, however, throwing boxes at the problem proved to be an unwieldy solution.

For companies involved in sensitive deals, such as mergers and acquisitions, “throwing boxes at the problem” traditionally came in the form of physical boxes containing actual paper. Documents were stored in one room or office, necessitating physical travel to that location in order to review information, make changes and collaborate.

Storing and protecting these documents was a necessary part of due diligence, which ensures that buyers know exactly what they’re committing to when they agree to a transaction, say Richard D. Harroch and fellow researchers at Forbes. Until the rise of cloud computing and cloud document sharing options, however, businesses could only do this due diligence in a dedicated physical space.

Today, online options have transformed paper documents into electronic ones and physical folders, boxes, and office space into a virtual data room box. 

What is Dropbox?

Dropbox is a cloud-based file storage service that allows for storing and sharing files in one virtual space and collaborating with other users.

Dropbox was launched in 2007. It was created by the American-based company Dropbox Inc. with headquarters in San Francisco, California, United States.

Primarily, Dropbox is a great solution for storing commercially-related files. With its help, users can not only share various files like private photos or videos but also sync across any device. All their data is accessible via desktop, mobile, or web browser. 

Dropbox has more than 700 million registered users. According to Statista, there were 17.77 million paying Dropbox users in 2022. 

dropbox registered users stats

Source: Statista

However, this number has already grown and as of Q2 2023, there are 18.04 million paying users.

One of the biggest advantages of Dropbox data rooms is that you can use them for free (though with limited functionality and only for individual usage). They’re extremely user-friendly — you can just create a Dropbox folder on your desktop, and all the files you add will be accessible to people you share them with. Moreover, Dropbox offers an offline access option that significantly improves collaboration with the parties involved. 

However, most of the clients indicate that the security measures the Dropbox app provides are not enough for big corporations and enterprises. They often point out that security ends at the point when a file is being shared.

In 2012, Dropbox suffered a security breach — the personal data of about 68 million users was revealed. No wonder this incident has resulted in big corporations and enterprises paying more attention to security issues when choosing a space to store and share files.

  • Interesting fact: Dropbox has been blocked in China since 2014 due to the lack of compliance with government content filtering regulations.

Main Dropbox use cases

Being a cloud storage platform, Dropbox is more oriented on cases where highly sensitive documents aren’t shared. However, Dropbox perfectly fits the needs of specialists in the following areas:

  • Creative
  • Sales
  • Marketing
  • HR
  • IT
  • Team management
  • Personal usage

On the contrary, virtual data rooms are mainly used for conducting complex business transactions in such areas as investment banking, mergers and acquisitions, manufacturing, healthcare, technology, and finance.

What are the similarities between a virtual data room and Dropbox?

Let’s make a comparison and define what Dropbox and virtual data rooms have in common.

  • Storage. Both Dropbox and all data room providers were designed to provide clients with a space to store and share large amounts of data. The storage capacity differs depending on your subscription plan, but the mission of Dropbox and virtual data rooms is similar.
  • Collaboration. Both solutions provide their clients with interactive tools. You can collaborate with other users inside the storage room.
  • Tracking. Customers can also monitor the changes users make to certain documents or files, both with Dropbox and the majority of virtual data room providers. This is especially helpful for teams working on a particular project.
  • Productivity. It’s easy to stay on track with the team with Dropbox and virtual data rooms. Both solutions offer such productivity-boosting features as electronic signatures, optical character recognition (OCR), and a doc scanner.
  • Integrations. For an even more streamlined collaboration, Dropbox and virtual data room vendors integrate with popular third-party applications such as Slack or Zoom.

The main differences between Dropbox and VDR providers

Now, let’s outline the key differences between Dropbox and the majority of virtual data room vendors.

DropboxVirtual data room
PurposeThe main purpose of Dropbox is to give clients a storage solution to share large volumes of commercially-related data.The main mission of VDRs is to provide customers with a safe virtual space to store sensitive corporate documents.
ProjectsCustomers get access to one main folder where all the files are stored.Clients can use separate projects created specifically for different projects.
SecurityDropbox does take security measures to keep your files private. Some security services are personalized watermarks, a remote wipe, and other featuresVirtual data rooms provide more advanced features when it comes to security — reduction, granular permissions, fence-view, and more. The majority of VDRs are also ISO 27001 certified and SOC 1/2/3- and HIPAA-compliant.
ReportingThere are no reporting tools on the Dropbox platform.Virtual data room vendors offer full audit trails and group overview reports.
User-managementYou can invite anyone to view the shared files on Dropbox.You can create groups that will have access to certain folders only.
Document managementAll the files uploaded to Dropbox storage are structured automatically in no particular order.Most virtual data rooms offer the automatic indexing feature that helps to keep the VDR’s structure clear and logical.
CustomizationDropbox doesn’t offer any customization options.You can create a branded virtual data room space so that the storage has your company’s look and feel.

Key 3 cloud security concerns and how they can be solved with VDRs 

With the rise of cloud document storage and collaboration, however, a corresponding rise in concerns about data security and privacy came.

Top concerns about cloud storage include data access control, compliance issues, and the risks associated with allowing document access on individual user devices, which might then be lost or stolen. 

“Security or the lack thereof has restricted universal adoption of cloud services,” says Mauricio Prinzlau at Digital Guardian. “The main issue is that enterprises have to entrust the security of their sensitive business data to third parties, who may or may not be working in their best interest.” 

Let’s briefly review the main security concerns about cloud storage and how virtual data rooms can help with their solution.

1. Access control

With uploading critical documents to the cloud, business owners worry that those data can be exposed to unauthorized views of third parties. It corresponds to the situations when cybercriminals can get access to the data room link with all the sensitive data that is shared inside an organization.

  • VDR solution: A secure data room makes sure sensitive business documents are only available to those who have a right to access them. This is possible due to the several levels of access permissions, IP address restriction, access expiration, and user security personification.

2. Lack of control over data on lost or stolen devices

Sensitive data on the cloud storage is often available to users from multiple devices. In case a certain device is stolen or lost, critical documents shared with a particular user become subject to leakage risk.

  • VDR solution: Secure data rooms prevent such situations with the help of remote wipe or shred. This feature allows for revoking access rights even after a file has been downloaded.

3. Compliance

When uploading critical data to the cloud, users often worry about exposing their personal or sensitive details that might be used by hackers or cybercriminals. This is strictly controlled by dedicated data protection regulations that ensure users’ data privacy and confidentiality. 

  • VDR solution: Modern secure virtual data rooms make sure their clients’ data is kept private and confidential by offering such compliance and certifications as GDPR, HIPAA, SOC 1,2,3, ISO 27001, and others.

Top 3 cases when it is best to use Dropbox

Let’s describe situations when you or your company should consider using Drop box virtual data room.

1. You need storage for data

Dropbox is a perfect solution when you’re looking for cloud-based storage. It provides several options in terms of storage capacity and price, depending on your personal or company needs. There are six subscription plans offered, with a storage capacity ranging from 2 TB to unlimited. The price starts at $9.99 per month and can be as high as your requirements in terms of storage size. 

What’s more, you can store your files on the Dropbox cloud for free if they’re not bigger than 2 GB.

2. You are looking for data backup

Drop box data room automatically backs up all the files you store on the cloud. It means that you can rest assured that your important project data won’t be lost in case of software failure or a device crash. To back up important information, just install the Dropbox desktop app and choose the required folders.

3. You want to effectively collaborate on a project 

Dropbox makes it possible for teams to effectively collaborate on projects with the help of such tools as Dropbox Paper and Dropbox Replay.

With the help of Dropbox Paper, teams can work on documents online and simultaneously in one workspace. They can edit, format, comment, assign to-dos, add deadlines, and mention people. 

Dropbox Replay allows teams to productively work on video, image, and audio projects in one centralized workspace. Replay cloud storage offering enables specialists to conduct live reviews of products, leave comments, provide feedback, and take action on feedback. 

Top 3 cases when it is best to opt for virtual data rooms

Some areas of business, like mergers and acquisitions and regulatory risk management, have embraced VDRs as the norm. Others — startups, SMBs, and companies facing litigation — may wonder whether a VDR is necessary for their current needs.

When certain factors are present, a VDR can provide protection essential to a smooth business transaction or relationship.

1. Your data is subject to privacy laws

A VDR is the more secure choice when a company must share information that is governed by privacy laws, says Lori Wade at Small Business Daily. 

For instance, medical information covered by the Health Insurance Portability and Accountability Act (HIPAA) or consumer data covered by the General Data Protection Regulation (GDPR) may require the additional layer of protection that a VDR provides when compared to consumer cloud storage.

Many of the types of data covered by existing laws are so covered because the data is particularly attractive to those who would use it to nefarious ends. Using a VDR helps ensure that this data stays within the hands of those who are authorized to access it.

2. You need transparency

Some consumer cloud storage options allow you to see when a person is accessing the same document you are, or when an item was last opened by someone on the team. A VDR, however, goes a step further by logging the identity of every user who interacts with every item in the system every time.

Because VDRs store information about which users log in, which documents they open, and how long they spend viewing each document, they’re transparent by nature. This makes VDRs a valuable choice not only for mergers and acquisitions but for IPOs, which are subject to stringent transparency requirements, research analyst Tricia Dempsey at G2 writes.

This transparency helps companies track changes and spot culprits in the case of misbehavior. But it has other benefits, as well. For instance, knowing which users looked at which records can help you gauge investor interest or spot areas that may be troubling a buyer. By tracking interactions, your team can plan its strategies more effectively.

3. You need a customized digital environment

Consumer cloud services are often designed as a one-size-fits-all solution. Users are constrained by the tools and user interface provided by the service, which may be quite limited in scope and flexibility.

VDR providers, however, understand that their clients need a service that works for them. As a result, VDRs allow for far greater customization than consumer cloud storage options. For instance, many VDRs allow their users to upload their own logos and branding and fine-tune displays.

Choosing a VDR is only the first step in using one effectively. To carry out a successful transaction or other business matter, good preparation is essential, Richard Harroch writes in a separate piece for Forbes.

For instance, key employees should have a clear understanding of how the data room works and which documents need to be collected for it. Early preparation can help facilitate the overall business transaction by preventing delays in information access.

“Typically, everything material about the business of the selling company will need to be included in the online data room, including key contracts, intellectual property information, employee information, financial statements, and much more,” — Harroch writes on using VDRs to complete mergers and acquisitions. Participating companies will also need procedures to ensure that all details are addressed, such as ensuring all interested parties have signed contracts.

With adequate preparation, a virtual data room can help ensure that your company’s work can move forward, free of the security, privacy, and access concerns that may attend to the use of consumer cloud storage services.

So, Dropbox or virtual data room?

Although Dropbox and data rooms provide their customers with a storing and sharing experience that a physical room can’t offer, they still have different purposes.

Dropbox (it can’t be termed as a “virtual data room box”) is a great storage solution for private or commercial-related issues. You can use it for free and access it anytime and anywhere, no matter the internet connection. Dropbox is also extremely user-friendly, which makes it so widely used around the world. It perfectly suits the needs of HR, marketing, sales, and creative departments. 

However, it can’t offer as high safety standards as virtual data rooms provide. That’s why large corporations and enterprises that conduct complex deals and transactions trust virtual data rooms more. VDRs are perfect for nonprofits, mergers and acquisitions, investment banking, finance, governments, healthcare, and manufacturing.

FAQ

Dropbox can be used as a data room for file storage and sharing, however, it doesn’t offer the sufficient level of security required for highly sensitive information.

Dropbox is a reliable cloud storage with various collaboration features that allow teams to effectively work on a project, even offline. On the contrary, virtual data rooms ensure a high level of security for the data shared online and offer collaboration options as well.

All files that are shared via Dropbox are encrypted and kept in secure storage servers around the United States. Dropbox also has servers in Japan, Australia, the United Kingdom, and the European Union.

The biggest disadvantage of Dropbox is that the security measures provided aren’t sufficient enough for conducting complex financial transactions and working on highly-confidential projects. At the same time, Dropbox is a perfect and secure solution for private or commercial-related use cases.

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