difference between diversification and differentiation

Diversification is going into different businesses. Eg an airline branching into setting up a hotel chain (related diversification) or a supermarket setting up a bank (rather unrelated diversification).

Differentiation is staying in or entering a particular business but producing a product or delivering a service which is better than your rivals. So, Apple could have produced ordinary laptops, but in fact it produces rather special ones. Toyota cars producing the Prius model that uses hybrid fuel is also differentiation: still in cars, but something that makes the product different and for which customers will pay more.

Apple launching iTunes and starting to make the iPhone are examples of diversification: it was branching out from computer manufacture.