IBM is making another run at Microsoft SMB customers, announcing a software-hardware appliance that combines an IBM-branded machine with its Lotus Foundations Start collaboration software.

IBM has also announced that VMware's hypervisor has been integrated with Lotus Foundations Start, allowing users to run Windows applications. IBM is now running a beta program around the capability.

IBM's timing was clearly meant to coincide with Microsoft's November 12 launch event for Small Business Server 2008 and Essential Business Server 2008. Microsoft could not immediately be reached for comment.

Lotus Foundations Start, announced earlier this year as a software appliance, takes Lotus collaboration and productivity features and adds security, disaster recovery and other capabilities. IBM is now hoping that partners and customers take to the idea of both the software and hardware coming from one vendor.

The Foundations software runs on a 100MB Linux kernel that starts from a solid-state chip. This means it can boot up in normal fashion even if both hard drives fail, IBM said. Operating system updates and other downloads are done over the Internet. The appliance, which can accommodate up to 500 users, also has a "system restore" button that recovers the system in case of a failure.

IBM will also court ISVs with the November 21 release of the Smart Business Developers' Kit, which can be used to port Domino-based applications to the appliance.

Lotus Foundations Start server software starts at $849 (approx £540) for five users. Pricing for the new hardware was not available. The system will be generally available in December.

Overall, IBM will have to "get very aggressive" both in terms of marketing efforts and pricing in order to gain traction among small businesses, said Laurie McCabe, an analyst with AMI Partners. "The good news for SMBs and partners is they have another solid choice."

However, the VMware beta shows that IBM recognizes "that they cannot be a completely closed platform because there is other software out there," said Forrester Research analyst Michael Speyer.

Also, while IBM's announcement heavily stresses the appliance's reliability, it does depend on a high-speed Internet connection, Speyer said. "All the management and software downloading is happening remotely over the Internet."