Thanks to YouTube, whose astonishing surge in popularity has welcomed online videos into the mainstream, small businesses now have a plethora of cost-effective options for online video advertising.

According to a recent report by the Kelsey Group, the emerging medium has reached a local level with an ecosystem beginning to form around the affordable production of video advertising for small businesses. Video production companies, such as Spot Runner and TurnHere, are now producing and distributing video ads at price points that are targeted toward SMEs, offering rates that are significantly lower than those of traditional advertising.

The report also cites concern over finding affordable ad distribution channels. Aside from cable television, another promising option is the Internet Yellow Pages, which has the greatest opportunity in local online video ads according to Kelsey:

The opportunity is greatest for IYPs, given sales assets, existing SME relationships and the growing demand for video advertising in the small-business marketplace where directory publishers hang their hats. Add to this the presence of high-margin, low ad elasticity vertical categories (similar to autos and real estate) such as professional services, and the potential becomes clear.

By embedding a video player in Internet Yellow Pages listings, the level of media and information of a traditional IYP lookup would be greatly enhanced. From a sales channel perspective, it could also be bundled with existing print and online display ad sales.

The report also notes that the vanity factor which has driven major revenues for Yellow Pages publishers is also very much present in online video. Video has the potential for easier integration into a cross-platform product bundle, since it is much easier to comprehend by advertisers (compared to other forms of performance-based marketing such as Pay Per Click).

Though its long-term benefits have yet to be realized, online video has the potential to be an extremely powerful medium, and the next must-have format in local advertising.