When Ayda Valilar first read that Uber was losing billions of dollars, she couldn’t believe it. She’d been driving for the ride-share service for nearly five years, and had tried unsuccessfully to organize a union in Los Angeles with other Uber contractors. How could a company that had so adamantly played Goliath to the drivers’ David be so deep in the red?

That was the reaction among many casual observers when Bloomberg reported in late August that Uber had lost $1.6 billion in the first six months of 2016, hemorrhaging capital on subsidies designed to make its pricing more competitive. It was the latest in a string of bad headlines for Uber. A week earlier, a federal judge ruled the company could be on the hook for more than $1 billion in labor costs. And just before that, drivers in Seattle beat back a legal challenge to dissolve the first-ever Uber drivers union.

Taken together, the summer’s events brought into sharp focus two of Uber’s fundamental challenges: labor and competition. The company is primarily engaged in buying a monopoly to justify its status as the highest valued start-up on the market. Meanwhile, it’s devoting many of its substantial resources to keep driver disputes stretching across the country from California to New York at bay—at least for now.

While the ride-hailing giant has provided the blueprint for a new generation of on-demand startups, its woes point to simmering contradiction in that gilded space. On one hand, venture investment in the on-demand economy multiplied 15-fold between 2013 and 2015. But increasingly, these investors are paying less for innovation than they are for gaming the market.

A plan to transform transportation

Since Uber’s founding in 2010, it has attracted more pre-IPO funding than any technology firm in history. The company is on pace to haul in at least $4 billion in revenue this year, with operations in more than 400 cities around the world.

Everyone agrees that Uber’s towering valuation can’t be justified by its current business alone. A full 85% of Americans have never used a ride-sharing service in their lives. Uber has convinced investors that the company won’t just disrupt the taxi business, but the broader universe of auto transportation.

Arun Sundararajan, a professor at New York University’s Stern School of Business and the author of The Sharing Economy, thinks it’s a possibility. “If they can shift 5% of US spending on buying cars toward on-demand, they’d be generating $50 to $60 billion in revenue a year,” he said. “It’s worth making deep investments now in order to be the one to capture that shift.”

As consumers grow accustomed to e-hailing services, the theory goes, car ownership will naturally fade—particularly if taking Uber becomes cheaper than having wheels of one’s own. Meanwhile, Uber is plotting its way into public transit and shipping.

The battle for market share

While we all wait for Uber to transform industries it has yet to penetrate, it’s worth taking stock of how Uber spends its money now. Uber’s goal is to convert investor money into muscle, edging out any potential competitor—including public transportation. Thanks to subsidies financed by investors, an UberPool ride in Manhattan costs as low as $5 a pop, nearly rivaling the subway.

The battle for market share isn’t cheap. Uber reportedly lost $2 billion in 2015, and as much as $1.27 billion in the first half of 2016, chiefly from subsidizing rides, according to Bloomberg.

Uber’s competition was stiffest in China, where the company was reportedly spending $1 billion a year battling rival Didi Chuxing. Uber lost the war, but ended up winning a stake in Didi when the Chinese competitor bought up Uber’s Chinese division in July.

Losses have mounted stateside as well. Uber eked out a profit in the US in the first quarter, but sank back into the red in the second.

If you listen to Uber’s investors and management, the big losses are all part of the plan.

Dean Baker, a longtime Uber critic and economist at the Center for Economic and Policy Research, compares Uber to Groupon, the over-hyped web discount company whose valuation fell from $13 billion in 2011 to less than a quarter of that today. “It’s not surprising that VC guys are getting really excited about something, but don’t have a clear idea of what it will look like, and how it will be profitable,” Baker said.

But if you listen to Uber’s investors and management, the big losses are all part of the plan. Disruption costs money and attracts enemies. Most startups take a while to post profits. That Uber has managed to corner roughly 85% of the ride-share market and achieve a $69 billion valuation are proof enough that things are going well.

“Uber is a unique beast for which there is seemingly insatiable investor appetite,” says Nikhil Krishnan, tech industry analyst at CB Insights. “These investors seem perfectly willing to finance this growth even with large losses.”

Riding out a worker revolt

What is clear is that Uber is in a new phase of development. The initial innovation phase, in which Uber’s engineers built the core of its ride-hailing product, has largely passed. Then there was a rapid expansion phase, gave way to slower, grinding turf wars.

Now Uber is in its latest phase: monopolization. Its capital flows increasingly to market maneuvers and labor struggles. Instead of paying for new innovations and capacity building, investments in the most highly valued private company in the world primarily exist to give customers cheap rides until Uber comes out on top.

Of course, Uber invests in things other than subsidies. The company recently bought up a self-driving trucking startup and set aside a half-billion dollars for new mapping technology. But CEO Travis Kalanick has suggested that what’s really driving Uber’s fundraising is competitive pressure. “If I don’t participate in the fundraising bonanza, I’ll get squeezed out by others buying market share,” he said earlier this year.

That continued fundraising has also allowed Uber to ride out a revolt by workers in the on-demand economy, a trend that has felled some of the smaller fish in the on-demand space. When HomeJoy called it quits last year, management cited mounting lawsuits from its workers, who wanted to be considered employees, not contractors. Facing the same labor pressures, Uber employs an army of 250 lobbyists to nudge state and city governments to create a favorable regulatory environment.

Yet so far, Uber has been unable to pay its way out of labor and regulatory disputes. US District Judge Edward Chen ruled in August that the company could be liable for over a billion dollars in damages for treating its workers as contractors instead of full fledged employees.

Uber isn’t shy about its desire to replace its drivers with robots. But a fully automated workforce is decades away.

“To believe Uber’s $68 billion valuation, you have to assume that its labor problems are going to go away sometime soon,” Baker said. In fact, Uber isn’t shy about its desire to replace its drivers with robots. It rolled out its first ever self-driving cars in Pittsburgh this summer. Still, a fully automated workforce is decades away.

Other companies built in Uber’s image, but without Uber’s massive war chest, are also folding. Shuddle (Uber for kids) and Spoonrocket (Uber for food both raised millions, only to fold over the past six months in what Techcrunch has called the “On-Demand Apocalypse.” For the on-demand start-ups still plugging away—and the VC investors who’ve bet on them—Uber’s recent headlines shouldn’t inspire comfort.

In order deliver big returns to investors, Uber and its ilk have to thread a very narrow needle. They need business models that obliterate labor costs while at the same time upending a market whose size makes it worthy of disruption. They need a model that’s simple enough to be replicated everywhere while assuring a virtual monopoly. They have to envision to a brave new world and then actively push consumers there. And they need to make profits—eventually.

It’s increasingly obvious that Uber’s $69 billion valuation makes sense only in a world where it’s the only player in town—with workers who are either squeezed or replaced with robots. Is that really the kind of disruption that investors want to bet on?