To my mind, the big missed opportunity of the A-H empire was the Ausgleich of 1867. There was an opportunity there - though never one that stood a realistic chance of being adopted - to turn the empire into a federation along the US model with a British or Belgian style constitutional monarchy. That might have been enough to at least placate for a while the nationalist forces that eventually tore the empire apart.

Instead, the "compromise" gave power to the largest and loudest minority - the Hungarians - at the expense of the rest. Some nationalities such as the Slovaks found that they'd simply exchanged one overlord for another and I understand that in some places the Hungarians were more unpleasant (as is often the way with formerly oppressed minorites who suddenly get power over another minority).

One thing I found fascinating (assuming it's true) on the Wikipedia page on the A-H navy is the fact that different departments on capital ships tended to be staffed with different nationalities - I quote:

Officers had to speak at least four of the languages found in the Empire. Germans and Czechs generally were in signals and engine room duties, Hungarians became gunners, while Croats and Italians were seamen or stokers.

That seems insane. I'd always assumed that, say, the Szent-Istvan was crewed by Hungarians, the Prinz Eugen was an Italian ship, the Tegetthoff a German one and so on.

Austria was significantly weakened in the 1800s by a wave of liberalism around 1848 as well as the rise of Prussia. The problem was that Austria in the course of its years of expansion had absorbed many different ethnicities-Italians, Slovenes, Croats, Serbs, Hungarians, Vlachs/Romanians, Czechs, Slovaks, and of course the native Austrian (Germans), as well as their Catholic allies in southern Germany. To try and accomodate each of these groups, each ethnicity had its own representation in a sort of parliament that ultimately was still subservient to the beck and call of the Austrian Emperor, who around this time was Franz-Josef.

Franz-Josef, though a competent administrator, was hardly a diplomatic type. And managing a multi-ethnic empire, especially one that absorbed many groups very dissimilar to each other, required a good diplomat. When the liberal revolutions of the 1840s swept through Europe, it roused up a significant amount of nationalist fervor. In addition to causing the Hungarians to revolt in 1848 (which forced the Austrians to turn the empire into a dual monarchy of Austria and Hungary, in order to try and appease the moderate Hungarians) and stirring up general dissent in the non-German portions of the Austrian Empire, it also had the effect of creating strong German and Italian nationalism. Prussia took advantage of this to unite Germany, partly by humiliating Austria in a war over a piece of formerly Danish territory, and partly by taking advantage of Austria's failure to act in the events that led to the Franco-Prussian war. Similarly, the Italians united into a cohesive force and were able to take back the areas of Italy (namely, Venice) that Austria had annexed. These wars severely hurt the economy and image of Austria-Hungary, and the collapse of the Ottoman Empire created further tensions, especially through the establishment of an independent Romania and the slow rise of Serbia and other Balkan states. The Serbs wanted to recover historically Serb lands, which included a substantial part of Austria-Hungary's territory, and the Romanians wanted Transylvania. Basically, everybody wanted a piece of Austria-Hungary.

Now, for the most part, aside from the Hungarian revolution, dissent in Hungary had been normalized after the establishment of the dual monarchy. However, this essentially came at the cost of autonomy for the Hungarians, meaning that Austria was unable to pursue several policies without Hungarian support, and that Austrian policies did not necessarily apply to areas under the control of Hungary such as Transylvania and Slovakia. Which in turn meant that policies that the Austrians wanted to implement to attempt to appease nationalists were not heeded in Hungarian denominated lands.

So while the empire as a whole was certainly doomed, I would say that it was conceivable that Austria-Hungary, the dual monarchy, could potentially have remained stable. For comparison, see the Polish-Lithuanian commonwealth, which also remained fairly stable for a long time despite being composed of two different ethnicities.

Source: Kiste, "Emperor Francis Joseph: Life, Death and the Fall of the Habsburg Empire."

There are two things with the failure of the Austro-Hungarian empire.

First, it is somewhat very easy, looking back, to say that the writing has been on the wall, and that everyone with eyes on his head could have seen it coming. This is only true if we approach the history as we approach physics: as we learn more about physics, it makes us more comfortable. The more we study history, though, the less certain we are about how the things that have happened, happened. Why, for example, christianity — a bizarre Jewish sect born in the outskirts of Roman empire — came to dominate the whole empire, while other religions of that empire disappeared? How Islam — born in the Arabian peninsula where almost nothing has ever happened in the previous several thousand years — rose and became prevalent on a huge territory from the Atlantic ocean to India? This is even more obvious when you talk about the historical period you know the best of all: the present. Will the US continue to be a world superpower or will its influence diminish? What will happen to Iran? The European union? Etc. etc. Whatever happens, we can be sure there will be historians in two-three hundred years who will say that it was completely obvious, but it's not helping any of us today.

So some caution should be exercised on the whole notion of "failed empires".

Second, specifically to the Austro-Hungarian empire under Franz Josef, there was a drive by his subjects, especially in the south, to gain independence, which they did gain; they've spent the next twenty years fighting over where the borders of their new nation-states should be drawn (as there was a lot of mixed populations), right until the WW2; seeing how it didn't work, they have then moved millions of people after the war, all across the borders, to make room for even more ethnically homogenous nation-states; they've fallen under yet another super-state entity, the Communist block, until the late 80s; they've made even smaller nation-states later (with Czechoslovakia turning into Czech and Slovak countries, and Yugoslavia into even more, and now Kosovo etc.); and now all these are eager to be incorporated into yet another super-state entity: the EU. Which, you know, raises a question: was it so bad under Franz Josef to begin with.

On a general note, the source of the power (of a state) was thought to be coming from god(s) up until 19-20th centuries (Chinese "Mandate of heaven", European "by the Grace of God"). The humanity is enjoying playing with the idea of power coming from the nation in the last two centuries, which leads to an ever-increasing number of nation-states with ever-decreasing abilities. Today, we see the rise of the idea that the power is coming from the man (universal human rights, etc.) which raises the question: if the human rights are so universal and needed to be guarded everywhere, why do we need so many governments to guard them? Wouldn't it be better if there would be only one global government? The power of modern nation-states diminishes everywhere, as they can't declare their own wars (because NATO) or even manage their own economy (because Euro) and they certainly can't by themselves manage the problems of the 21st century (like CO2 and global warming). If Chinese believed that the power was given by heaven to the powerful to take care of the people, today we see it as if the power is given by people to the powerful to take care of heaven.

All this is pretty well described in From Animals into Gods: A Brief History of Humankind by Yuval Noah Harari.

Well hard to say but i personally would say it was bound to happen, but could not happen without such a catastrophe as the war.

Before the war all nations/political parties were unsatisfied with the current political situation, however all parties (except some small extreme parties) searched for the solution strictly within preservation of the monarchy and the unified state. If the idea of total independence existed nobody took it as a serious and realistic option at the time.

Also the reforms were actually happening since 1868 when the dual monarchy was founded. However all nations had conflicted interests. The Hungarian and Austrians had their fight over rights inside the dual monarchy where imperials wanted more centralized state and Hungarians wanted even more independence. In this dual monarchy Slavs were left out and were, in their opinion, subjected to open centralization efforts from whichever capital ruled them.

I will put the Croatian example, but I am sure other Slav nations had similar: the area was divided between Austria and Hungary, while people obviously wanted the unification of all Croatian lands into one. In each part there was a long and loud political struggle against perceived Hungarian or Austrian centralization, their cheating, breaking of contracts and promises and forced cultural assimilation. Hungarians wanted to build a strong Hungarian state with strong Hungarian culture, which Croatians viewed as an attack on the smaller nations within Hungarian part, in this case Croats. And in that perception the same rights Hungarians demanded from Austrians, were denied to Croats by Hungarians themselves which kind of made Croats more angry. And lets not forget that in Croatia there was also a issue (then minor but still existent) that in Croatia there was a large Serbian population too as a further source of complications and national tensions.

In that atmosphere it seems kind of impossible that reforms could be achieved. Too many sides with too many conflicting opinions even inside each nation's political scene let alone when it came to dealing with other nations. Political maneuvering and scheming was common and ended up every party switching sides, allies and political positions according to their current interest (which usually makes matters worse in the long run)

However, it is worth noting that allegedly Franz Ferdinand, the heir to the throne whose assassination started WW1, had plans to reform the country into a sort of a heavily centralized state with a additional Slav part of the monarchy and general increase of Slav rights to counter the Magyar opposition. This maybe could have at best prolonged the empire. If he would succeed in his plan of course, which is debatable and unlikely

A lot of inhabitants sensed that the Austro-Hungarian Empire was doomed during the turn of the century. Although the emperor was very popular, the Empire had to deal with a great number of nationalist movements. The cultural base for the Empire was only focused in Austria , not in the other regions. This is one explanation for the great number of dissident movements. An other is the reluctance for political reform.