Virtual Data Room Vs. Dropbox Data Room

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.

While tools like Dropbox and Google Drive can work well for day-to-day business, they 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. 

However, the Dropbox data room is an efficient solution in many situations. What are these situations, and when virtual data rooms will do better? Explore the article below.

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 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.

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 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 virtual domains. And Dropbox data room is now one of the most well-known ones.

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. 

One of the biggest advantages of the Dropbox data rooms is that you can use them for free (though with limited functionality). 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 Dropbox 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 — 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.

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
  • The main purpose of Dropbox is to give clients a storage solution to share large volumes of commercially-related data.
  • Customers get access to one main folder where all the files are stored.
  • The main mission of VDRs is to provide customers with a safe virtual space to store sensitive corporate documents.
  • Clients can use separate projects created specifically for different projects.
  • Security
  • Dropbox does take security measures to keep your files private. Some security services are personalized watermarks, a remote wipe, and other features
  • Virtual 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.
  • Reporting
  • There are no reporting tools on the Dropbox platform.
  • Virtual data room vendors offer full audit trails and group overview reports.
  • User-management
  • You can invite anyone to view the shared files on Dropbox.
  • You can create groups that will have access to certain folders only.
  • Document management
  • All 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.
  • Customization
  • Dropbox doesn’t offer any customization options.
  • You can create a branded virtual data room space so that the storage has your company’s look.
  • Cloud Security Concerns and the Response of Virtual Data Rooms

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

    “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.”

    Top concerns about cloud storage include data control, data leakage, lack of backup services, hacking, and the risks associated with allowing document access on individual user devices, which might then be lost or stolen.

    Small Businesses Could Be Especially Vulnerable

    Small- and medium-sized businesses (SMBs) in particular may be sensitive to the risks of storing sensitive business documents in a consumer cloud. When information is stored with consumer services like Dropbox, unauthorized access and data theft can be difficult to detect or prevent, says François Amigorena, founder and CEO of IS Decisions. Managing data security can become a major concern for run-of-the-mill business documents and an even more daunting concern for highly sensitive information.

    The cloud makes it easier to share information, but it also makes it easier to have that information stolen. “Many organizations share a huge amount of sensitive data with their clients over email and via the cloud — and with supply chain attacks on the rise, all it takes is one mishap from one supplier to compromise your data,” says Amigorena.

    To address some of these risks, some businesses have adopted a hybrid cloud model that keeps sensitive information on in-house servers while allowing less sensitive information to be stored on a cloud provider’s servers, says Bojana Dobran at PhoenixNAP. But a hybrid cloud may be insufficient to both protect sensitive data during due diligence procedures and allow the kind of access key parties need.

    Enter the Virtual Data Room

    Business data pouring onto the internet through commercial cloud services like Dropbox, Google Drive, Apple iCloud, and Amazon Web Services has become a tempting target for hackers, who have attacked each of these services in recent years, says Dr. Rao Papolu, CEO of Cavirin Systems. While these services can be useful for personal or everyday tasks, they simply aren’t designed with the level of security and privacy required in the due diligence process.

    VDRs help meet the need for a highly secure online space in which to conduct sensitive business matters. Also known as deal rooms, VDRs provide a secure, customizable online repository for key business information, allowing companies to leverage the benefits of online collaboration while avoiding some major pitfalls of cloud storage, says Will Kenton at Investopedia.

    For instance, VDRs offer not only encryption and password protection, but the ability to designate which documents can be accessed by which parties. That’s what the image below illustrates. Note how consumer cloud storage really only does two things: Let certain users add and access information.

    Deal rooms, by contrast, offer levels of user customization, and they can get granular about who has access to what documents. Deal rooms also offer the option to see who has logged in, when they did so, and which documents they viewed or modified.

    When to Skip Consumer Cloud Storage

    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.

    When 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.

    When 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.

    When 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 of 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.

    When to use Dropbox and when it’s better to use a virtual data room

    Although Dropbox and virtual 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.

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