Agile is perfectly suitable for product development and internal development. I've used it successfully for both types. The main difference is where and how you get your on-site customers. We discuss this in our section on "Real Customer Involvement" in the book. Actually, we discuss five types of development:
In-house custom development
Outsourced custom development
Agile development is appropriate for all five. [ October 31, 2007: Message edited by: James Shore ]
James Shore, coauthor of <a href="http://www.amazon.com/Art-Agile-Development-James-Shore/dp/0596527675" target="_blank" rel="nofollow">The Art of Agile Development</a>. Website and blog at <a href="http://www.jamesshore.com" target="_blank" rel="nofollow">http://www.jamesshore.com</A> .