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I absolutely think there's a market for a 7" model. My iRex is 8" and that is near perfect for reading - the form factor is a marvel. I love my ipad, but mostly prefer to read landscape in the two-page format, unless I am reading PDFs or technical books. The ipad is great for gaming, but I think a smaller device would make a certain segment of the market quite happy, though honestly I like my iPhone a lot.
A mini-iPad would be a good product for someone who doesn't own or want an iPhone or iPod touch, and find the iPad too large. Some people just do not want an iPhone for whatever reason, and the iPod Touch isn't all that fabulous as a music player because most of the time it's more convenient to have tangible buttons. An iPad-mini would fit a gamer who owns a DS or a PSP, or a person who wants an eBook Reader and doesn't mind the glow.
And they should call it Goldilocks.
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