When should document sets be used instead of folders (and vice versa)?

Question

SP2010 supports both folders and document sets, but why are both concepts supported, i.e. in what significant ways do they differ from the use-case perspective?

Google has revealed seemingly arbitrary differences like "document sets can't be nested" while folders can. Both support information management policies, both can have custom metadata (although folders seem to require some more clicking to do it), both can have custom permissions ... One important thing I noticed is that it doesn't seem possible to capture a version of the entire folder, while document sets support this (so you can do an easy restore later if needed). But why not simply just join the benefits of both concepts into one (i.e. document sets that can be nested etc.) and ditch the other?

In other words, why do folders even exist in SP?

Answer 1

Document Sets were newly implemented in SharePoint 2010 and not without limitations so folder functionality could not be eliminated. The single limitation I found that most impacted our implementation of Document Sets was the inability to declare Document Sets as in-place records, meaning you can only declare them as records in a Records Center. Additionally with SharePoint 2010 you cannot nest folders (as Robert Lindgren pointed out).

As to why do folders exist in SharePoint?

1. Ease the transition from the file share by maintaining a structure previously used.
2. Help prevent list limit view errors.
3. You can set default metadata values for each folder.
4. Allow folder level security if you are inclined to break inheritance, but don't want to go to the item level.
5. Folders are not necessarily evil.

As Document Set functionality matures with each SharePoint version it may become a replacement for folders, but I would argue that with SharePoint 2010, metadata tagging is more of a replacement for folder functionality than Document Sets. Using folders forces you to know the imposed file structure. Metadata tagging combined with views offers more flexibility both from a tagging and finding perspective.

Answer 2

In 2013 (but not in 2010 as you say) you can nest Document Sets.

So then the only differences is the fancy WelcomePage and the possibility to add Shared Metadata between the document set it self and all contained files.

And as you write, the fact that you do not have version history on folders, but on Document Sets.

More about document sets from TechNet here http://technet.microsoft.com/en-us/library/ff603637(v=office.14).aspx