The main point is that Amazon's advantage is exposing divisions to external competition. Without it "internal supplier gets complacent with a captive, internal customer."
However later paragraph says:
> The key advantage that Amazon has over any other enterprise service provider – from UPS and FedEx to Rackspace – is that they are forced to use their own services. UPS is a step removed from backlash due to lost/destroyed packages, shipping delays, terrible software, and poor holiday capacity planning. Angry customers blame the retailer, and the retailer screams at UPS in turn. When Amazon is the service provider, they’re permanently dogfooding. There is nowhere for poor performance to hide.
On one hand, as Amazon opens up the pieces that comprise its architecture, they begin to compete for external customers. On the other hand, Amazon itself keeps using its own solutions.
By the way, it’s not just that Amazon prevents its divisions from becoming ‘fat and inefficient’ by opening them up to external competition. Crucially, thanks to commoditising early and getting tons of companies to use its platform, Amazon can now see how others innovate on top of it (having low-level access to consumption information) and quickly follow on anything new, basically innovating but without risky R&D of their own[0].
What he's saying is that all services Amazon provides are going to have both internal and external customers. Both will drive the service to be better, and never get complacent.
External customers will signal that the product sucks by not being customers of it. Internal customer will force the product to be reliable because if it isn't your director will hear about the costs of it not being so.
Bias: 5 years at Amazon. May someday go back if the startup I joined falls.
The larger point is that companies that 'synergise' divisions see initial efficiencies. However, over time, without external forces, those efficiencies atrophy.
By having two customers for a service, at least one of those external to the organisation, competitiveness is kept in focus.
However later paragraph says:
> The key advantage that Amazon has over any other enterprise service provider – from UPS and FedEx to Rackspace – is that they are forced to use their own services. UPS is a step removed from backlash due to lost/destroyed packages, shipping delays, terrible software, and poor holiday capacity planning. Angry customers blame the retailer, and the retailer screams at UPS in turn. When Amazon is the service provider, they’re permanently dogfooding. There is nowhere for poor performance to hide.
Doesn't it contradict earlier point?