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This is a very interesting buy. Obviously Google are looking to get something more than crowdsourced opinions on Google Places, etc.- I can't say I blame them.

I wonder what this means for things like the Zagat book. I'm sure in the short term they'll continue, but the Google-y way would be to remove all the 'hard copy' stuff in time.

If they do decide to discontinue the Zagat book they could turn it into an eBook on google books possibly.
So is this Google's plan to compete with Yelp?
I imagine so. Also keep in mind that Google just lost a big court case that forced them to take reviews of restaurants, etc. off of their search results if they come from sites like Yelp.
I always figured they care more about the local deals than anything
This was my first reaction as well. With talks of Yelp looking for an IPO this year, the timing doesn't seem like it's just coincidence.