It is feasible to implement a custom matchmaking service using Azure Functions?
Can we list the active server sessions and spin up fresh server sessions using Azure functions?
Or would you recommend doing it any other way ?
PS: The current PlayFab matchmaking it's not enough for us due to the lack of Lobby style rooms.
You can use an Azure Function to handle the startup and shutdown of your custom server or other functions, since Azure Function is very powerful and flexible, but Standalone Azure Function cannot handle long time running service like matchmaking. If you care about lobby feature, the Multiplayer Lobby is now in public preview, you can have a look.
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