Nadella predicts Project Natick, under which Microsoft deployed a 40-foot data center pod on the seafloor off the coast of Scotland, could be repeated across the world.
"Since 50 percent of the world's population lives close to water bodies, we think this is the way we want to think about future data center regions and expansion," he told the Microsoft Future Decoded conference in London.
Nadella was referring to the fact half the world's population lives within 120 miles of the coast, and building smaller data centers close to where people live could deliver low-latency data to users, important for real-time cloud services and gaming.
But beyond reducing latency, Project Natick also offers various advantages in how easily and rapidly data centers can be deployed, according to Nadella.
"It was very fast to build, the entire supply chain of it, from start to finish, was 90 days," he said.
Project Natick was Microsoft's proof of concept for whether prebuilt undersea data centers could cut the time "from decision to power on" from two years to 90 days.
The project's engineers argued in an article in IEEE Spectrum that these shorter deployment times could allow Microsoft to react to demand for increased capacity, rather than having to anticipate future demand. They envision deploying a collection of undersea pods, each with several thousand servers, and adding to them as required.
The Natick data center has 12 racks containing 864 servers, with a liquid cooling system that transfers heat to the surrounding ocean. The pod is built to last five years, and will remain on the seabed for at least a year as Microsoft observes how it fares.
"It's unique in the sense that it's underwater, it's self-contained, [and] it's sustainable because it takes wind power," Nadella told the conference.