Over 845,000 organizations in the United States reported hindrances in smooth business operations due to cyber threats in 2021. Data protection concerns magnify when it involves third-party data sharing. For example, transactions like mergers and acquisitions require businesses to make their data public or share it with a multitude of investors. Under such circumstances, companies look for more reliable and secure data-sharing platforms like virtual data rooms.
However, there is a strong debate on why businesses should turn to virtual data room software when there are free online data management tools. To some extent, the point is valid because you can store, share, and remotely access data using free platforms; then why should you choose online data room software?
Here is a detailed comparison between data room software and free data storage platforms.
What is a virtual data room?
Electronic data room software is a cloud-based data management and online collaboration tool that professionals, nonprofit organizations, businesses, and even government institutions use to store, manage, distribute, exchange, organize, or share business information internally and externally.
In addition to data management, data rooms mostly have a wide range of modern-day communication tools necessary for businesses, board members, senior officials, and remote workers.
What’s more, dealmakers use data room services for transactions like initial public offerings (IPOs), capital raising, private equity acquisitions, joint ventures, divestitures, and mergers. That said, data rooms are considered literally universal.
“To be precise, data room technology can be differentiated in multiple ways, but it’s the diversity of virtual data rooms that gives them an edge over other cloud-storage platforms. You can use VDRs for a wide variety of purposes — mergers, acquisitions, divestitures, joint business operations, strategic partnerships, and private equity transactions,” says Ronald Hernandez, Founder at Dataroom-Providers.org.
While divestitures are not commonly mentioned in the context of data rooms, they are the second most popular use case after M&As. Explore how data rooms facilitate divestitures at: https://dataroom-providers.org/blog/divestiture-guide/
What is cloud storage?
Cloud storage or cloud computing is an online technology used in free online data storage platforms and virtual data rooms. The technology allows users to store, share, transfer, exchange, and access data through internet-based tools and applications.
However, it is important to note that cloud technology is not totally virtual. Yes, users don’t need an in-house data server, but the data is stored on physical servers hosted by service providers.
Virtual data rooms vs. free cloud storage platforms
Now, let’s explore what exactly makes data rooms so popular for various business uses — and in what particular features and capabilities they outperform regular data storage.
Data security certifications and compliance
The first major difference between free cloud storage and virtual data rooms is their internal and external data security strength. Virtual data rooms are fundamentally developed to protect sensitive business data, and it is obvious if you look at the security certifications held by virtual data room providers.
For example, all the notable data room vendors are HIPAA, SOC2, Type II, ISO 27001, and GDPR certified. Apart from that, a few of these names are also FISMA and FINRA-certified. That means these platforms comply with the data protection standards set by these globally recognized organizations. However, free data storage platforms are mostly not certified by these regulatory authorities.
It is important to note that these certifications also help businesses comply with regulations set by their concerned regulatory authorities. For instance, FINRA regulates the security industry in the US, and a FINRA-compliant VDR will automatically tackle compliance issues for the users.
Communication
How many free cloud-storage platforms have built-in communication tools or even allow third-party integration; only a few of them?
On the contrary, the best data rooms mostly have built-in tools like chat messengers, Q&A modules (often used in deal-making and external transactions), and meeting management tools (agenda builder, digital notes, meeting minutes templates, online voting tools, etc.).
Security features
Virtual data rooms give you multiple layers of security, which is rare to find on free platforms. Here are some unique security features that make data breaches almost impossible.
Digital or dynamic watermarks are usually text, images, or videos that users embed in their documents to avoid copyright or ownership disputes. Digital watermarks also track all the changes made in the documents and who made those changes.
Another feature unique to virtual data rooms, fence-view mode hides or blurs selected text from the document. That means a business can disclose some information from one file and hide the confidential part. Similarly, the view-only feature restricts users from sharing, editing, deleting, copying, annotating, downloading, or printing any document. In fact, it prevents screenshots as well.
The administration in the data room can control the device logins in the VDR. For example, it can ban or restrict any login from a new or unregistered device. That means even if a user’s credentials are compromised, the hacker still cannot access the data room from a new device even after using the correct details.
Other notable security features include remote document shredding, permission settings, remote device purging, and file tracking.
Final words
Virtual data rooms are differentiable based on their imperial and state-of-art security features, communication tools, activity trackers, audit reports, and project management tools. Unlike regular cloud storage, data rooms offer high reliability and universality for literally any transaction.
If you are considering using a data room for your business, some of the best virtual data room providers on today’s market include iDeals, Intralinks, DFIN, Caplinked, and DealRoom. However, we recommend conducting your data room comparison and research to make an informed decision.
