Apple has a smaller 7.85″ version of its iPad tablet in its labs, according to John Gruber of Daring Fireball. The comment comes at 1hr 19 minutes into episode #86 of The Talk Show.

The information about the smaller iPad came to a question from host Dan Benjamin’s question: “Is Apple going to come out with a 7″ iPad, and if not: why not?”

“Well, I don’t know. What I do know is that they [Apple] have one in the lab…a 7.85 inch iPad that runs at 1024×768…it’s just like the regular iPad shrunk down a bit,” Gruber said. “I’ve heard from multiple people that this is something that they’re kind of noodling with.”

He goes on to note that he has heard from ‘nobody’ about whether this smaller prototype will ever hit the market or if Apple has any plans to do anything with it beyond a prototype.

Gruber goes on to mention that you can get a feel for how it would be to use the iPad by taking a screenshot of a regular iPad in portrait, then turning it into horizontal mode to view the screenshot smaller. This will allow you to experience the interface at roughly the size it would be on a 7.85″ iPad.

Screen Shot 2012 04 04 at 5.30.42 PM 520x390 Apple reportedly has a 7.85 version of the iPad in its labs, but that shouldnt surprise you

Now, why is this news unsurprising? Well it’s not because rumors have been coming out of spotty rumor sites in China. It’s because this is exactly the way that Apple develops its products. I talked about this earlier this year, in a piece about how Apple’s products come to be, using information gleaned from Adam Lashinsky’s book Inside Apple.

Here’s the process step that is pertinent to discussion about a 7.85″ iPad:

Once a product is done, it is designed, built and tested again. At times there are leaks that display versions of a product like the iPhone that we never see released. Many times these leaks come from China, where a factory worker has been paid to hand off a prototype to a blogger or journalist. It turns out that once Apple is done building a product, it redesigns the product and sends it through the manufacturing process again, explaining the various versions we may see leaked. This is a 4-6 week process that ends with a gathering of responsible Apple employees at the factory.

The EPM then takes the beta device back to Cupertino for examination and comments, hopping right back on a plane to China to oversee the next iteration of the product. This means that many versions of any given device have been completed, not just partially prototyped. This is an insanely expensive way of building a new product, but it is the standard at Apple.

Basically, if Apple had any remote thought about making, prototyping or investigating a smaller iPad, then it makes sense that it has already produced such a device and is testing it in its labs. This may be something that looks very close to what we would consider a ‘finished’ product.

The reasons that Apple might have for releasing a smaller iPad are still up for debate, but the likeliest is price. The iPad currently has a virtual stranglehold on the tablet market, with little to fear from the Kindle Fire or Nook, which occupy the lower price bracket. But, if that ever changes and one of its competitors does gain traction enough to begin to erode the iPad’s market share, Apple would have a price competitive product ready to go.

Gruber doesn’t open his mouth about stuff like this unless he genuinely has information, so I believe him when he says that he’s heard there’s a smaller iPad in Apple’s labs. I just don’t find it all that surprising that it exists.