John Gruber remarking on Dan Frommer’s post on the iPad mini being the “real iPad”:
I think the 9.7-inch size was better to start with conceptually, to establish the iPad in consumers’ minds as something they might want to own. The biggest complaint about the original iPad upon its unveiling was that it was nothing more than a “big iPhone”. That would have been an even bigger complaint if they’d launched with the smaller 7.9-inch display instead. The bigger difference in physical size made it even more likely that developers would do the work to create iPad-optimized versions of their iPhone apps, too.
Had Apple initially launched a 7.9-inch iPad, I actually think it may have failed. It simply would have been deemed too close in size to the iPhone/iPod touch. “Tablets make no sense” yadda yadda.
It took the 9.7-inch as a sort of proof-of-concept and perhaps just as importantly, a catalyst to get developers thinking about the tablet as different from the smartphone. The iPad mini directly benefits from both developers and consumers now willing to think differently.