First of all, WOW! If you havent already seen the massive change that occurred in Google then you need to immediately check out Marthas post explaining how Google local results are incorporated into the organic SERPs.
The organic rankings havent changed themselves but whats changed is how these results are now being displayed. Gone is the local 7 pack and instead we now see a blended organic page with the top sites for local terms displaying their address and even a small thumbnail in addition to the traditional title tag and meta description snippet.
One of the other major changes is that there is now a map on the right hand side that hovers over the sponsored listings in the right sidebar (for now " cant see Google wanting users to have difficulty clicking on the ads in the sidebar for much longer).
Really cant understate how massive the implications of this change are! From my perspective, Google is hands down providing a much better user experience and instantly eliminating many businesses that try to spam the old Google Local/Google Places listings with fake addresses, virtual offices/numbers and P.O. boxes, fake reviews and citations, etc.
Since its still relying on its algorithm for organic rankings what it signals is that local businesses that traditionally thought that just their local listing was important will now need to wake up and ensure they have solid organic positioning to compensate for the new changes that got implemented on the afternoon of October 27, 2010.
Google Adwords vs. Local?
As for Google Adwords - the program is not going anywhere; its the backbone of Googles enterprise and should only benefit from having an increased demand for the top slots for sponsored listings on the homepage as the traditional directories will have no other choice but to start raising their bids in an attempt to gain back some of the massive traffic they will lose over time with the changes we see today.
What This Means To You (& Us)
Weve all seen Google test out major changes like this before but one would have to believe that this is the direction they are going. With no PR update in over 8+ months weve all been speculating internally that Google must be up to some big changes; you can imagine the shock (and pure excitement!) we all experienced when we saw these changes live.
This is great news for small businesses who have already invested in SEO, and for those that have been reluctant it will prove that they need to get with the times and get optimized sooner than later or else they risk losing the ground to local competitors who will.
At the end of the day I believe Google has been testing and tweaking this for a long time (first it was a more advanced Google Places and then this) and their whole goal has always been to provide a better search experience for the user. But with these changes their alternative goal seems clear " to capture as much local search dollars as possible. All in all exciting times to be in the SEO industry!