Virtual data room vs free cloud storage: The pros, the cons, and the facts

Are you on the threshold of M&A or any other complex transaction? While some leaders still use basic cloud storage, others choose virtual data rooms. So, which solution is right for you? Read on and explore the following and make your decision:

• What is cloud storage?
• What is a virtual data room?
• What are the pros and cons of the solutions?
• What are the key differences between cloud storage solutions and virtual data rooms?
• Which solution is better for M&A?

What is cloud storage?

Cloud storage is the technology behind most virtual data rooms and free file sharing platforms. In cloud computing, data exchange happens through internet-based tools and apps. This approach to storing data allows users to exchange information and files from anywhere quickly.

The clouds are not entirely virtual. Every file sharing platform hosts servers that contain the software and user data. The main difference from on-premise storage is that the servers are remote.

Image source: Dropbox.com

Cloud storage services have many uses, from domestic to industrial. But a free file sharing platform might not be the correct solution for everyone.

Pros and cons of free cloud-storage services

Most household users find the public-access providers sufficient enough. However, businesses and dealmakers need to guarantee added security and functionality.

What is a virtual data room?

Virtual data room (VDR) is a platform for storing and exchanging confidential data that ensures high data security by complying with international data room security certifications.

In addition to storing confidential data, a virtual data room offers other business features and services. They include user management and activity tracking tools, data-gathering instruments, templates, and checklists.

Image source: Top Reporting and Analytics VDR Functionality | Ideals Virtual Data Rooms 

Learn more: What is data room?

• Mergers and Acquisitions
• Due Diligence
• Fundraising
• IPO

Apart from storing sensitive data, a virtual data room can offer many additional tools and services — for instance, user management and tracking, data gathering instruments, templates, and checklists.

Virtual data rooms ensure secure data storage and sharing through the following features:

• Granular user permissions. Data rooms allow administrators to set granular permissions, such as view-only access, restricted printing, screenshot prevention, and time-limited access.
• Detailed audit trails. The software generates logs that track every user action, including document views, downloads, and edits.
• Document watermarking. Dynamic watermarks featuring user names, IP addresses, and timestamps prevent unauthorized data sharing.
• Secure viewing. VDRs offer fence-view or “view only in browser” modes that prevent users from copying, printing, or downloading sensitive content.
• Advanced encryption standards. Virtual data room providers employ enterprise-grade AES-256 encryption for data in transit and at rest, ensuring the highest level of protection for sensitive business documents.
• Compliance with regulatory standards. Adherence to stringent compliance requirements, such as GDPR, HIPAA, SOC 2, and ISO 27001, makes data room solutions preferred over other options for industries requiring regulatory assurance.
• Two-factor authentication. Beyond standard logins, data rooms require multi-factor authentication to prevent unauthorized access.

These features ensure that virtual data rooms go beyond basic file storage, offering advanced document security and access controls.

Virtual Data Room Market Size, Share, Trends | Growth [2032]

Online data room pros and cons

According to a paper by the Institute of Mergers, Acquisitions and Alliances (IMAA), virtual data rooms offer more value to dealmakers than any public-access storage solution. This is due to a combination of a wide tool range and niche focus of most VDR providers.

However, many users hesitate to make the necessary shift because of virtual data room costs. Which brings us to the following question, “Are public-access cloud storage services actually free?”

Check the best data room solutions

Are cloud storage services free?

Although most cloud storage providers advertise their services as free, it’s not always the case. Cost-free conditions only apply to limited storage volumes. Nearly all services provide “freemium” packages — limited storage free of charge, but additional storage requires an upgrade for a monthly fee. 

The complimentary space is often more than enough for household users. But businesses and independent professionals will very likely face monthly charges for additional storage.

Take a look at what the most popular cloud storage providers charge for extra space:

Cloud storage provider	Free Space Offered	Additional Space Upgrade Options
Google Drive	15 GB	100 GB for $1.99/month 200 GB for $2.99/month 2 TB for $9.99/month 10 TB for $99.99/month
DropBox	2 GB	Basic plan – 1 TB for $3.75/month Pro – $9.99/user/month for 100 GB/month Business – $15/user/month
pCloud	10 GB	500 GB for $175/lifetime membership 2 TB for $350/lifetime membership
Microsoft OneDrive	5 GB	100 GB for $1.99/month 1 TB for $6.99/month$5/user/month
Sync.com	5 GB	2 TB for $8/month 3 TB for $10/month 4 TB for $15/month
OpenDrive	5 GB	$12.95/user/month
Egnyte	10 GB	10 GB for $10/month

Are there free virtual data rooms?

Compared to the typical cloud storage fees, virtual data room costs might seem out of proportion. And a lot of potential VDR users wonder, “Are there free data rooms?”

The most straightforward answer is no. Virtual data room costs cover top-quality security measures, constantly evolving technologies, and efficient customer service.

Virtual data room vs cloud storage: Key differences

The table below summarizes the key differences between virtual data rooms and cloud storage in purpose, security, and functionality.

Feature	Virtual data rooms	Cloud storage solutions
Purpose	Secure document sharing and collaboration in M&A, due diligence, and other data-heavy deals	General-purpose storage for personal and business data
Security	High-level security with encryption, multi-layered data protection,, and compliance features	Basic security features like encryption, but less robust overall
Access controls	Advanced role-based access control, fine-grained permissions	Basic file sharing with simple permission settings
Compliance	GDPRHIPAASOC 1SOC 2SOC 3ISO/IEC 27001:2013	Limited compliance
User authentication	Multi-factor authentication, two-factor authentication	Typically only username and password
Collaboration	Secure collaboration with a Q&A module, file versioning, document annotations, commenting	Basic file sharing and version control
Customization	Customizable user interfaces, branding, and security settings	Limited customization options
Support	24/7 dedicated support, often with personalized assistance	General customer support, often with limited availability
Cost	Typically more expensive than cloud storage due to advanced features and business focus	Often free or low-cost, with paid options for additional features and storage

👁️‍🗨️ General-access cloud storage has a track record of major security breaches, including the Dropbox password leak of 2012 and iCloud’s 2014 fiasco.

Which solution is better for M&A?

Based on the table above, virtual data rooms are the better solution for mergers and acquisitions. They offer reliable data protection, compliance with industry regulations, granular access controls, detailed audit trails, and advanced document security features, which are essential for handling sensitive documentation during complex transactions.

Unlike basic cloud storage options, virtual data rooms offer M&A parties the following benefits:

1. M&A-tailored solution

Data rooms are purpose-built to handle the sensitive and complex nature of mergers and acquisitions, providing a secure environment for managing critical data and documents throughout the transaction.

2. Increased control

The solution offers greater control over who can access, share, and interact with sensitive documents, allowing M&A parties to maintain strict confidentiality and reduce the risk of unauthorized data access.

3. Streamlined processes

Online data rooms streamline the M&A process by organizing and centralizing documents securely, making it easier for parties to review data and make informed decisions.

4. Confidence in security

With advanced security measures, VDRs provide peace of mind that sensitive data will be protected, reducing the likelihood of breaches.

5. Optimized collaboration

VDRs allow secure collaboration among stakeholders with real-time updates, annotations, and discussions, all while keeping data safe.

Other benefits of virtual data rooms for business

The main reason why general-access cloud storage isn’t the same as a free virtual data room is security. Although virtual data room costs can be high, they are associated with value. Here’s why businesses go for VDRs over free cloud storage:

• Experienced VDR providers offer all the necessary tools for productive teamwork and governance.
• Virtual data room software can handle large data volumes and multiple active users.
• Companies that invite partners and buyers to VDRs come off as more responsible and trustworthy.
• User-friendly interfaces and free data room training make the VDR experience simple for every participant.
• Most virtual data rooms can be customized to match specific requirements and visual presentation.
• Established VDRs undergo strict regulation and auditing.

Virtual Data Room vs. free cloud storage: Final thoughts

Public-access file-sharing platforms may be fine for non-confidential files, but they lack the security needed for sensitive data. 

In contrast, virtual data rooms are designed for secure data storage and file-sharing in complex business deals. In particular, they offer advanced encryption, granular access controls, and compliance. 

So, a virtual data room is the better choice if you need to manage sensitive transactions.

References

1. What Is Cloud Storage? | IBM 
2. Virtual Data Room Market Size, Share, Trends | Growth [2032] 
3. Dropbox hack ‘affected 68 million users’ – BBC News 
4. Apple says its systems not to blame for celebrity photo breach | Reuters