We can and probably should discuss what we mean by privacy and then compare the companies' practices against that. In the end Apple's definition of privacy is not more or less arbitrary than anyone else's.
Whenever it comes to analysing and critiquing anything that Apple does, I find it usually helps to focus with Apple, and then move outwards. Many people are comparing Apple too much to other companies, and they are not allowing Apple’s unique attributes to speak for themselves or recognise how Apple is able to set themselves apart from the competition.
Apple defines tracking as an app following you across apps and websites from other companies with the goal of creating a personalized profile. Since third-party apps and websites are involved, the implication is there is also data transfer / mixing / crossing present (which is often more true than not).
Apple’s ads business is based on collecting first-party data from Apple-owned apps. No data is transferred or crossed with third-parties in order to create personalized user profiles. In addition, cohort data isn’t compromised so that third-parties are able to discern more granular information about individuals included in the cohorts.
Apple is in the right when saying it’s apps don't fall under the scope of ATT since its apps (i.e. the App Store) aren’t doing what ATT is aimed at alerting Apple users about. The way Apple defines tracking is also in-line with how the W3C (World Wide Web Consortium) defines tracking.
I find it laughable that it’s somehow Apple’s fault that Facebook is unable to explain how ATT will harm consumers when the truth is that doing so would require facebook to reveal how they actually track users (it won’t be pretty).
Second, critics attempt to paint the way Apple draws a line between first-party and third-party data usage when talking about privacy as “exaggerated” and “deceptive” because first-party data collection gives Apple's ads business an advantage over Facebook. Said another way, Apple’s privacy narrative shouldn't be trusted because the company stands to make money by pushing privacy.
While we can debate the meaning of tracking, it’s clear that what Apple is doing with its ads business is different from a company like Facebook. I personally feel Apple is well-positioned to offer adds in a way that does not go against its privacy culture (i.e. no personalized profiles being created with the intent of delivering ads or changing behavior).
We are a long way off from saying “no ads whatsoever”, but perhaps less invasive ads would be a reasonable middle ground to work towards in the interim.