Such a model would allow infrastructure developers to abstract away most of the concerns around networking, collisions, security, etc., and let game developers concentrate their efforts on simply making the game.
I currently have a game server cluster written in Golang, where the locations are instantiated with an idempotent request operation. It doesn't matter if a particular location-instance exists at a particular moment. It's sufficient for the "master control" server to only approximately know the loads of the different cluster server processes. My experience leads me to believe that something like AWS Lambda, but optimized for implementing game loops would work well, so long as game developers could get their heads around pure functional programming and implement with soft real-time requirements in mind. (John Carmack already advocates the use of pure functions, and game devs in general already do the latter.)